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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended February 2, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________
Commission File Number 000-21250
THE GYMBOREE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2615258
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
700 Airport Boulevard, Suite 200, Burlingame, California 94010-1912
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650)-579-0600
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each Class which registered
Common Stock $0.001 par value Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of April 18, 2002, was approximately
$389,774,493, based upon the last sales price reported for such date on the
NASDAQ National Market.
As of April 18, 2002, 28,831,304 shares of the registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on June 25, 2002 (hereinafter referred to as the "Proxy
Statement") are incorporated by reference into Part III.
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THE GYMBOREE CORPORATION
TABLE OF CONTENTS
Page
Number
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PART I
ITEM 1. BUSINESS ................................................ 2
ITEM 2. PROPERTIES .............................................. 13
ITEM 3. LEGAL PROCEEDINGS ....................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS ................................................ 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS ............................ 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA .................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................... 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ............................................ 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............. 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES ................... 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...... 39
ITEM 11. EXECUTIVE COMPENSATION .................................. 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ......................................... 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......... 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K ............................................ 39
Signatures ........................................................ 43
1
This annual report on Form 10-K contains certain forward-looking
statements reflecting our current view of future events and financial
performance. Our actual future performance may not meet such expectations.
Factors that could cause future performance to vary from current expectations
include, but are not limited to, the factors discussed in the "Business"
section and in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of this annual report on Form 10-K.
PART I
Item 1. BUSINESS
The Gymboree Corporation (Gymboree) is a leading international specialty
retailer operating stores selling high quality apparel, accessories, and play
programs for children under the GYMBOREE (Registered Trademark) brand. We
operate stores in the United States, Canada, Ireland, and the United Kingdom,
primarily in regional shopping malls and in selected suburban and urban
locations.
Gymboree Retail Stores. Gymboree retail stores offer high quality apparel
and accessories characterized by child-appropriate, fashionable colors and
prints, complex embellishment, comfort, functionality and durability for
children ages newborn to seven years. Under the Gymboree brand name, we design
and contract manufacture children's apparel and accessories for sale
exclusively by Gymboree. As of February 2, 2002, we operated 580 Gymboree
retail stores, including 528 stores in the United States, 23 stores in Canada,
and 29 stores in Europe, as well as an online store at www.gymboree.com.
Gymboree Play & Music. Gymboree Play & Music offers directed parent-child
developmental play programs designed to enhance early childhood development
through fun-filled sensory and motor activities that engage children through
sight, touch, sound and movement for children ages newborn to four years old.
Gymboree Play & Music also offers birthday party services and sells certain
developmentally appropriate toys, and audiotapes. As of February 2, 2002,
Gymboree's Play & Music programs included 25 Company-operated play centers in
California and 459 franchisee-operated play centers, of which approximately 68%
are located in the United States, and the remaining 32% are located in other
countries, including Australia, Brazil, Canada, France, South Korea, Malaysia,
Mexico, Singapore, Taiwan, and the United Kingdom.
Janie and Jack. Janie and Jack is a new retail store concept that we will
begin testing in the Fall of 2002. The Janie and Jack stores will offer
high-quality, delicate apparel and gift accessories for children ages newborn
to three years old. The stores will target a high-end gift buyer and have a
look, feel and appeal that is differentiated from Gymboree. We intend to test
this concept in the fall of 2002 with ten retail locations in the United
States.
Gymboree was organized in October 1979, as a California corporation, and
re-incorporated in Delaware in June 1992.
Business Strategy
Gymboree's business strategy consists of the following principal elements:
-- High Quality Apparel: We strive to offer our customers high quality
apparel with an excellent price/value relationship. We design the
merchandise to be comfortable, functional, safe and durable by placing
particular emphasis on high quality fabrics and detailed garment
construction.
-- Brand Name Recognition: Gymboree has developed a clearly recognizable
brand image, translating to "The Best for Your Kids." This image was
initially built through our Play & Music programs, a quality experience
in the lives of young families, which was the original business of
Gymboree. Customers associate shopping at Gymboree with unique, high
quality, appealing, "kid-right" children's clothing and accessories
sold in an attractive and friendly environment.
-- Integrated Operations: We believe that the vertical integration of our
design, contract production and retailing operations enables us to
identify and respond to market trends, maintain rigorous product
quality standards, closely monitor the distribution of our products,
and maintain the highest quality of customer service.
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-- Exclusive Distribution Channels: Our products are sold through Gymboree
retail stores, the Gymboree online store (www.gymboree.com) and, to a
limited extent, through our Play & Music sites. From time to time, we
may liquidate inventory through other channels.
-- Responsive Customer Service: Customer service and satisfaction are
defining features of the Gymboree corporate culture. Assisting
customers in merchandise selection and outfit coordination is the top
priority of Gymboree team members. We believe that this customer
service, in combination with our merchandise, encourages multiple item
purchases per customer.
Products and Merchandising
Gymboree's merchandise has evolved significantly over time. Prior to 1988,
Gymboree offered unisex apparel for children ages six months to five years and
a selection of non-apparel products, including toys. Since 1989, we have
broadened our apparel merchandise assortment by developing separate big boys',
big girls', baby boys', baby girls' and newborn lines, and by distinguishing
assortments that are designed utilizing child appropriate silhouettes, colors
and fabrics, in the context of coordinating outfits all under the GYMBOREE
(Registered Trademark) label.
Our merchandising strategy focuses upon the quality and design of the
apparel products and planned introduction of new product lines, along with a
steady supply of fashion basics in seasonal colors and designs intended to
satisfy customers' needs. Gymboree strives to create a distinctive look for its
merchandise to enhance brand recognition and stimulate customer loyalty.
Gymboree apparel is designed, manufactured, purchased and merchandised by line
in support of Matchmatics (Trademark), our wardrobing service that allows our
customers to mix and match items to create dozens of outfits.
Each of Gymboree's stores features 12-16 major fashion merchandise lines
per year. Each merchandise line generally consists of approximately 30-40
clothing items, encompassing matching tops and bottoms, with coordinated color
palettes, patterns and designs. Additionally, each line features a wide
selection of related accessories that complement the apparel, such as
coordinated socks, hats, shoes and hair accessories. In order to maintain the
freshness of its merchandise, Gymboree regularly updates the assortments by
rotating each line on an 11 to 13-week selling cycle. Although Gymboree
generally is unable to reorder items after a line has been purchased, we
carefully monitor the rotation schedule and have the ability to accelerate the
introduction of new lines based on selling demand. Gymboree follows a policy of
buying inventory at levels intended to meet demand for full price selling and
markdown sales, and follows a strict markdown policy based on time in store.
Gymboree purchases inventory by store volume and capacity, in order to maximize
inventory turns and gross margin dollars.
The coordinated line deliveries are complemented by accompanying
deliveries of basic merchandise. These items are intended to coordinate with
several lines on a seasonal basis, and are generally less embellished and
priced lower than the fashion offerings. The amount of any given delivery that
is composed of basics varies by department. The basics are intended to increase
outfit options and be an integral part of the Matchmatics service philosophy.
Gymboree's merchandise presentation maximizes customer convenience in
selection, by displaying outfits on mannequins and placing featured items in
easily found, nearby displays. Our visual merchandising effort creates a
compelling selling environment and assists team members in the process of
Matchmatics. Our merchandise is displayed by department (big boy, big girl,
baby boy, baby girl, newborn, sleep) within the store. Also, accessories are
shown within each department, and seasonal "capsules" are displayed in various
prominent areas. These capsules may include special seasonal merchandise
(themed 4th of July items, swim wear, Valentine's day, etc.) The front table in
each store displays an assortment of items from all departments, and serves to
feature a given segment of the product offering (pajamas for Christmas,
Valentine's day items, etc.). A typical store offers approximately 200 to 250
new styles of apparel and accessories in each line.
Design, Sourcing and Contract Manufacturing
Gymboree apparel is characterized by distinctive designs, quality
fabrications and construction and an excellent price/value relationship.
Gymboree sources high-quality, comfortable and durable fabrics.
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Our merchandising and design team creates unique color combinations and
original patterns for these fabrics and emphasizes durability, functionality
and special detailing.
Gymboree manages the production of apparel from the initial product
concept, through color and pattern design, fabric development and testing,
sample approval, testing, and garment manufacturing. We believe that the
vertical integration of our operations and the coordinated efforts of our
merchandising and design, production, and planning teams enable Gymboree to
create distinctive offerings and control quality. The merchandising and design
teams determine the styles for merchandise based on an evaluation of current
style trends as well as a review of historical business performance. In
conjunction with foreign buying agents, the production team arranges fabric
sourcing and garment production while the quality team ensures that the final
products satisfy Gymboree's detailed specifications and strict quality and
safety standards. The process from initial product concept/design to receipt of
finished product requires approximately nine months for fashion collections,
and somewhat less time for basic items. Fabric and production commitments are
made approximately five months before receipt of the finished garments at our
distribution center.
Throughout the design process, Gymboree's merchandising and planning teams
prepare financial forecasts for each line of clothing on an item-by-item basis.
Certain proposed items in a line may be revised or replaced as a result of this
team's financial analysis. This team also monitors inventories on a daily
basis, prepares seasonal plans and develops unit production forecasts.
The majority of Gymboree apparel is manufactured to our specifications by
approximately 200 independent manufacturers in key countries in the Far East
including China, Indonesia, Macao, Taiwan, and Thailand, as well as Central
America, Mexico, South America and the United States. Gymboree sources its
fabric from approximately 20 vendors. Gymboree purchases all products in U.S.
dollars. We have not experienced any material difficulties as a result of any
foreign political, economic or social instability, although there can be no
assurance that we will not experience such difficulties in the future. We have
no long-term contracts with suppliers and typically transact business on an
order-by-order basis.
Gymboree's quality control team arranges with independent testing
laboratories to test fabrics prior to cutting against established performance
standards for quality and safety. During the prototype sampling stage and
following manufacturing, the technical teams subject the merchandise to tests,
which ensure that construction, workmanship and fit, as well as the style and
appearance of the garments satisfy Gymboree's stringent specifications.
Subsequently, the production and quality control teams review the garment test
and bulk production inspection results to verify that the quality is consistent
with Gymboree's high standards. Gymboree generally does not purchase its
finished apparel products until manufacturing has been completed and the
products have been approved by independent testing labs and Gymboree's quality
control and production teams.
Gymboree engages factories that agree to our Terms of Vendor Engagement,
which require compliance with local laws and, whether or not permitted by local
law, require that factories not employ child or forced, prison or indentured
labor. Gymboree's personnel make periodic visits to factories, in addition to
retaining a social compliance firm to conduct random audits of factories,
including payroll practices and worker living conditions. In the event that we
become aware of a significant violation of our Terms of Vendor Engagement, we
will take action including, when we deem it appropriate, the ceasing of
business with the affected factory.
Store Management Strategy
Our first priority is to improve the productivity of our existing store
base by increasing sales, improving inventory flow and optimizing the
allocation of product. In addition, Gymboree seeks strategically to manage our
current store portfolio by expanding the size of high-performing stores
(sometimes relocating to a larger store within the same mall), opening new
stores in major metropolitan malls, certain secondary regional malls and in
select downtown street locations that satisfy certain demographic and financial
return criteria, and closing under-performing stores. In fiscal 2001, Gymboree
opened eight new stores in the United States, closed eight stores in the United
States, relocated 10 stores in the United States, opened three new stores in
Canada and closed three stores in the United Kingdom.
4
Gymboree sold 18 of its Zutopia stores to The Wet Seal, Inc. and closed one
Zutopia store. The average size of new stores opened during 2001 was
approximately 2,200 square feet. During fiscal 2002, we plan to relocate and
expand 15 to 20 Gymboree stores, open up to 10 Gymboree stores and close
approximately 3 Gymboree stores. Included in our 2002 new store openings are
approximately three stores in Canada. In addition, we plan to open and test 10
Janie and Jack retail stores beginning in the fall of 2002. Our ability to
continue to expand the number of stores successfully in the future will depend
on a number of factors, including the availability of suitable store locations,
the negotiation of acceptable lease terms, our financial resources and the
ability to control the operational aspects of our growth.
Gymboree expanded from two Gymboree stores in California in 1986 to 580
Gymboree stores, including 528 stores in 50 states and the District of
Columbia, 23 stores in Canada and 29 stores in Europe, as of February 2, 2002.
The following table sets forth, by geographic region, the net number of stores
opened and closed during each of the periods indicated.
Fiscal Year
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Prior
to
1995 1995 1996 1997 1998 1999 2000 2001 Total
------ ------ ------ ------ ------ ------ ------ ------ ------
East ............. 66 14 17 23 30 6 -5 -1 150
Midwest .......... 38 19 25 10 24 1 0 -1 116
South ............ 48 26 12 29 39 4 -3 -1 154
West ............. 57 11 16 7 14 0 0 3 108
Europe ........... 0 0 0 6 18 7 1 -3 29
Canada ........... 0 0 5 6 4 4 1 3 23
Gymboree ......... 209 70 75 81 129 22 -6 0 580
Zutopia .......... 0 0 0 0 0 19 0 -19 0
Total ........... 209 70 75 81 129 41 -6 -19 580
Less than 10% of Gymboree's revenues were derived from outside the United
States, in 2001, 2000 and 1999, and less than 10% of Gymboree's long-lived
assets were located outside the United States in 2001, 2000 and 1999.
Site Selection. In selecting new store sites, Gymboree typically looks for
high traffic locations ranging from 1,500 to 3,000 square feet in regional
malls, specialty centers and suburban main street locations. Our real estate
process includes extensive analysis of potential store sites and bases its
selection on the performance of other specialty retail tenants, size of the
market and demographics of the surrounding area. In evaluating a store
location, placement of the store relative to retail traffic patterns and the
number of children in the trade area are important considerations. Although our
current stores are located primarily in regional malls, we have opened stores
in alternative locations. In addition, we plan to relocate some higher volume
stores within the same malls where we anticipate receiving a competitive
advantage. There can be no assurance that Gymboree will continue to be
successful in either obtaining favorable sites for our new stores or
negotiating favorable lease terms for such sites.
Store Operations
The primary objective of store management is to maximize sales by
providing superior customer service. Store management is principally
responsible for sales training and implementing performance evaluation systems.
In a continuing effort to minimize sales personnel time away from customers,
operational procedures are reviewed and streamlined by the store operations
team prior to implementation at the store level. This team is also responsible
for field and store staffing, daily sales motivation and central
office-to-store communications. Our merchandising team also interacts with
store personnel and is responsible for developing merchandise presentation
plans that can be effectively implemented at the store level. Ongoing
communication between the merchandising teams and store teams is a priority, as
customers communicate their desires to store personnel who then provide
feedback directly to the merchandising team.
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Gymboree North American store operations are managed by seven Regional
Business Directors through 58 operating districts. Each District Sales Manager
is responsible for approximately 8-10 stores. Store staffing levels vary with
store volume. During the holiday selling season, store personnel levels are
substantially increased to accommodate peak traffic levels. The 29 stores in
Europe constitute one region, which is divided into three districts with
similar team member staffing as in North America.
A number of programs offer incentives to store personnel. Sales associates
receive compensation primarily in the form of hourly wages. Incentive
structures are designed to maximize store contribution and comparable sales
growth. Scheduling procedures allocate payroll hours to stores based on sales
performance rather than simple availability. Regional Business Directors and
District Sales Managers receive compensation in the form of salaries,
performance-based bonuses and stock options.
Customer Service
Customer service is a defining feature of the Gymboree corporate culture.
We believe that knowledgeable and enthusiastic store personnel have a direct
impact on profitability. Gymboree places great emphasis on the selling function
through consistent and on-going training and evaluation systems that are
initiated by the central office and administered by field management at all
levels. Our store managers spend most of their time on the sales floor
assisting customers and coaching their selling teams. District Sales Managers
spend the majority of their workweek on selling floors, providing leadership by
inspecting the total customer experience throughout their district. Regional
Business Directors develop and execute business plans and are responsible for
achieving plan numbers for their regions.
Our customer focus is emphasized in recruiting and, as measured by sales,
is the primary component in the on-going evaluation of personnel performance.
We minimize sales associates' time spent on administrative functions by
centrally determining merchandise display and replenishment, markdowns and
basic labor scheduling. By emphasizing friendliness, product knowledge and
personal attention, we believe that Gymboree has established a reputation for
excellent customer service.
Store Environment
Gymboree stores are designed to create an energetic and enjoyable shopping
environment. The brightly lit stores and glass storefronts allow the colorful
in-store environments to attract customers from the outside. Stores are
constructed in an open manner, which enables customers to see virtually all
product offerings from the store's entrance.
During 2000, we introduced a new storefront sign that matches our updated
logo and trademark. The new signage has been applied to approximately 303
stores and the remainder of the stores will receive the new signage before the
end of 2003. When the new signage is added the storefront appearance is
modified to a cleaner, updated look versus our former natural wood arches
supported by giant children's building blocks and brightly colored "dancing"
letters. The sign change results in updating our look while at the same time
attracting customer attention and inviting customers to enter. Gymboree
believes creating a uniform trademark presentation is important, from
storefront to packaging, hang tags and labels inside product.
Inside Gymboree stores, merchandise is displayed on a front table display
stand, mannequins, fixtures, and store walls by department in coordinated
outfits, which allows easy accessibility and provides ample floor space for
customers to maneuver strollers within the store. In 2000, we introduced new
store fixtures to a small number of our stores. In 2001 we rolled out the new
fixtures to 100 stores and plan an additional 149 stores during 2002. The new
fixtures are characterized by wooden pillar display units, which permit
fungible division of departments, use of hanging photography to brighten store
interiors, and changeable displays of small clothing items and accessories.
While parents shop in Gymboree stores, children are encouraged to enjoy
Gymboree videos which run continuously throughout the day on screens set at a
child's eye level.
Marketing and Promotion
Our goal in all marketing activities is to promote customer loyalty and to
continue to expand our customer base. In an effort to achieve our goals we are
continuously testing various methods for message
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delivery and promotional programs that add value to the customer experience.
During 2001, we introduced a new promotional program called "Gymbucks" designed
to provide multiple purchase incentives and to enhance customer loyalty. The
program has proved to be very successful and we intend to continue with the
program in 2002. We also conducted various direct mail campaigns, both through
the mail and online, and provided "bag stuffer" bounce back coupons to
customers who made purchases during the year. Looking forward, we may undertake
public relations, print and other electronic advertising, in-store events and
planned promotions, cross-promotional opportunities, and direct mail. We also
believe that creating synergy between the Gymboree Retail stores and Play &
Music Programs may help fuel effective marketing, advertising and promotional
efforts.
Electronic Commerce
Gymboree first launched its web site at www.gymboree.com in fiscal 1997.
In 2001, we re-launched our site in an effort to better align the experience
found online with the experience found in our stores. Our web site offers our
entire product offering for children between the ages of newborn and seven
years. During the year, we also began testing online enrollment for our
Gymboree Play & Music classes at selected U.S. locations. We plan to continue
to invest in technology, operations, and merchandise offerings to meet business
demands and our customer's expectations.
Merchandise Distribution
Gymboree's merchandise is shipped primarily via ocean carriers from
foreign ports to ports in the U.S., Canada and Ireland. From there it is
delivered to our distribution centers located in Dixon, California, (for U.S.
stores), Toronto, Ontario, (for Canadian stores), and Shannon, Ireland (for
European stores). Contract manufacturers or vendors are required to complete
manufacturing and deliver merchandise to our foreign consolidator within a
designated shipping window. This shipping window ensures timely delivery of the
product to Gymboree's U.S., Canadian and Irish distribution centers using
cost-effective ocean transportation.
Our transportation department coordinates the transportation of all
purchase orders and monitors the timeliness of these shipments. Customs
clearance takes place upon entry of goods to the U.S., Canada and Ireland.
Samples of all items are reviewed by U.S. or local customs agents prior to the
actual shipment of merchandise. This process reduces the customs clearance time
and speeds the delivery of the merchandise to Gymboree.
Our U.S. merchandise is received, checked, processed and distributed
through our U.S. distribution center in Dixon, California. This distribution
center is a Gymboree-owned 300,000 square foot facility, which opened in
January, 1998. New lines are received at the distribution center approximately
three to four weeks before the intended in-store date. The merchandise is
processed, packed by store, and delivered to the store on a targeted date
approximately once per month. Merchandise is periodically replenished based on
store sell-through. Merchandise for distribution to Europe is shipped directly
from the factory to a 26,000 square foot leased facility in Shannon, Ireland,
where it is processed for delivery to the stores. Merchandise destined for
Canadian stores is shipped directly to a third-party distribution center in
Toronto, Canada.
Outbound transportation is also coordinated by our transportation team.
During 2001, store orders were consolidated by region and shipped via truckload
carriers into the downstream terminals of regional less-than-truckload
carriers, allowing Gymboree to build full trailers, thereby reducing the
delivery cost per unit.
Management Information Systems
Gymboree's information systems department integrates store, merchandising,
distribution and financial systems. These systems operate on Unix and NT
platforms. Gymboree outsources technological support, including the
point-of-sale help desk, network administration and computer operations. Sales
and other inventory management information are updated daily in the merchandise
reporting systems by
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communicating with each store's point-of-sale system. Gymboree evaluates
information obtained through daily reporting to supplement merchandising
decisions regarding replenishments, markdowns and allocation of merchandise.
Gymboree believes that our information systems are essential in achieving
our growth plans and maintaining a competitive industry position. We have put
in place a strategic plan to upgrade our systems infrastructure, replacing
legacy systems in the areas of Sales Audit, Loss Prevention, Finance, Warehouse
Management, Merchandising, and Production Management.
Play & Music Programs
As of February 2, 2002, Gymboree's Play & Music programs included 25
Company-operated play centers in California and 459 franchisee-operated play
centers, of which approximately 68% are located in the United States, and the
remaining 32% are located in other countries, including Australia, Brazil,
Canada, France, South Korea, Malaysia, Mexico, Singapore, Taiwan, and the
United Kingdom. In addition to generating income, we believe that the Play &
Music Programs provide attractive cross-marketing opportunities for Gymboree
stores and further strengthen the GYMBOREE (Registered Trademark) brand name
recognition with retail customers.
The Gymboree Play & Music programs are designed to enhance early childhood
development through fun-filled sensory and motor activities that engage
children through sight, touch, sound and movement. Motor skill development is
stimulated through physical play and exercise in an exciting, safe environment,
which includes proprietary, developmentally appropriate play equipment. The
Gymboree Play & Music Programs involve weekly 45-minute classes offered
throughout the year. Classes are designed to interest and challenge children
through activities that are tailored to enhance mental and physical development
as well as to provide opportunities for socializing. In addition to sliding,
climbing, jumping and running, classes include music, structured play
activities, games and often a finale featuring a colorful parachute, songs,
bubbles, and GYMBO (Registered Trademark) the clown. Gymboree Play & Music
also offers birthday party services and sells certain developmentally
appropriate toys, and audiotapes. At least one parent or caregiver accompanies
each child and participates in the activities with their children.
Gymboree classes are offered to children aged newborn through four years
old. GymBabies (for ages newborn to six months) introduce sensory play with
special props and equipment. GymCrawlers (six to 12 months) develop upper-body
stability, strength and coordination. GymWalkers (10 to 18 months) emphasize
pre-walking and early walking skills and enhance strength, socialization,
walking, balance and coordination. GymRunners (14 to 28 months) encourage
exploration and build motor skills. GymExplorers (for two year olds) explore
movement, stories, puppetry and songs. GymKids (three year olds) learn
non-competitive skills like catching, throwing, kicking and tumbling. GymPairs
classes are designed for parents with two mobile children; activities are
modified to serve the needs of each participant. The music curriculum for
children from 6 months through four years old covers various musical styles,
instruments, rhythm, and dance movement.
Gymboree's standard franchise agreement provides for an initial term of 10
years. Upon signing the franchise agreement, each United States and Canadian
franchisee currently pays an initial fee of $35,000 (U.S.) and $25,000 (U.S.)
respectively, for the franchisee's first play center location, $27,000 (U.S.)
and $20,000 (U.S.) for the second, $23,000 (U.S.) and $17,000 (U.S.) for the
third, and $20,000 (U.S.) and $15,000 (U.S.) respectively for the fourth (and
each subsequent) location. Each international (excluding Canadian) franchisee
pays an initial fee ranging from $85,000 (U.S.) to over $1,000,000 (U.S.),
depending on the franchise area for a Master Franchise and receives the right
to sub-franchise sites. Gymboree receives up to 20% of the fees paid by
sub-franchisees to the Master Franchisee. Both United States and international
franchises are renewable for one additional 10-year term, and Gymboree receives
no fee upon the renewal of the franchise from domestic franchisees. Gymboree
receives a royalty of 6% of each domestic franchisee's gross receipts from
operations, and a fee of approximately $10,500 upon the transfer of a franchise
from one domestic franchisee to another. Currently, Gymboree supplies the
franchisees with program aids, equipment and consumer products at a cost to the
franchisee and conducts initial and ongoing training programs.
Gymboree will continue offering franchises for sale in fiscal 2002.
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Trademarks and Service Marks
In the United States, Gymboree is the owner of the trademarks and service
marks "GYMBOREE", the trademarks "GYMB.O" and "GYMBABY", among others. These
marks and certain other of Gymboree's marks are registered in the United States
Patent and Trademark Office, and the mark "GYMBOREE" is also registered, or is
the subject of pending applications, in approximately 60 foreign countries.
Each federal registration is renewable indefinitely if the mark is still in use
at the time of renewal. Gymboree's rights in the "GYMBOREE" mark and other
marks are a significant part of our business. Accordingly, we intend to
maintain the mark and the related registrations. Gymboree is not aware of any
material claims of infringement or other challenges to our right to use the
mark in the United States.
Gymboree uses a number of other trademarks, certain of which have been
registered with the United States Patent and Trademark Office and in certain
foreign countries. We believe that our registered and common law trademarks
have significant value and that some of our trademarks are instrumental to our
ability to create and sustain demand for and market our products.
Zutopia
Gymboree launched the Zutopia concept in 1999. During fiscal 2000,
Gymboree decided to focus its efforts on expanding the core Gymboree brand and,
accordingly, entered into an agreement with The Wet Seal, Inc. to sell the
19-store Zutopia chain. Under the agreement, substantially all the assets of
the Zutopia stores, along with the trademark and the rights to the Internet
site www.Zutopia.com, were transferred to The Wet Seal, Inc. as of March 25,
2001. In addition, The Wet Seal, Inc. assumed all rights and obligations of the
leases of 18 of the 19 stores. The remaining store was closed. As a result of
the sale, Gymboree recognized a loss of $5.0 million in the fourth quarter of
fiscal 2000, which included a loss on the sale of property and equipment, a
reserve for inventory and an accrual for legal fees and severance that was
expected be incurred as a result of the sale.
Effective March 25, 2001, the Zutopia stores began operations under the
management of The Wet Seal, Inc.
Factors That May Affect Future Performance
The discussion in this Annual Report on Form 10-K contains certain
forward-looking statements, including statements regarding planned capital
expenditures, planned store openings, expansions and renovations, future cash
generated from operations and future cash needs. Such forward-looking
statements, in particular, and Gymboree's business and operating results, in
general, involve risks and uncertainties. Actual results may differ
significantly from the results discussed in the forward-looking statements due
to a number of factors, many of which are beyond our control. The following
discussion highlights some of these factors and the possible impact of these
factors on future results of operations. Given these factors, we cannot assure
you that we will be able to effectively continue and strengthen our operations.
We may not be able to operate successfully if we lose key personnel, are unable
to hire qualified additional personnel, or experience turnover of our
management team.
The continued success of Gymboree is largely dependent on the personal
efforts and abilities of our senior management and certain other key personnel
and on our ability to retain current management and to attract and retain
qualified key personnel in the future. Also, because customer service is a
defining feature of the Gymboree corporate culture, we must be able to hire and
train qualified sales associates to succeed. The loss of certain key employees,
Gymboree's inability to attract and retain other qualified key employees or a
labor shortage that reduces the pool of qualified sales associates could have a
material adverse effect on our growth, our operations and our financial
position. Furthermore, we have experienced significant turnover of our
management team in recent years, and several members of our key management team
have only recently joined us or have been promoted to executive positions for
the first time. For example, our current chief executive officer was appointed
in February 2001, and our chief
9
financial officer was appointed in February 2002. In addition to performing
their regular duties, our new managers must spend a significant amount of time
devising strategies to execute our business model. If they are unable to
effectively integrate themselves into our business, to work together as a
management team or to master their new roles in a timely manner, our business
will suffer.
Because we purchase and sell our products internationally, our business is
sensitive to foreign risks associated with international business.
Gymboree's products are currently manufactured to specifications by
independent factories located primarily in Asia, as well as Central America,
South America, Mexico, the Middle East, and the United States. In addition to
Gymboree's reliance on foreign manufacturers, Gymboree has store and
distribution operations in Europe and Canada. As a result, our business is
subject to the risks generally associated with doing business abroad, such as
foreign governmental regulations, foreign consumer preferences, currency
fluctuations, natural disasters, social or political unrest, disruptions or
delays in shipments or customs clearance, local business practices and changes
in economic conditions in countries in which our suppliers or stores are
located. Gymboree cannot predict the effect of such factors on our business
relationships with foreign suppliers or on our ability to sell our products in
international markets. If any such factors were to render the conduct of
business in a particular country undesirable or impractical, or if our current
foreign manufacturing sources or mills were to cease doing business with us for
any reason, such actions could have a material adverse effect on our results of
operations and financial position.
Our business may be harmed by additional United States regulation of foreign
trade or customs delays.
Our business is subject to the risk that the United States may adopt
additional regulations relating to imported apparel products, including quotas,
duties, taxes and other charges or restrictions on imported apparel. We cannot
predict whether additional United States quotas, duties, taxes or other charges
or restrictions will be imposed upon the importation of our products in the
future, or what effect any such actions would have on our business, financial
position and results of operations. If the U.S. government imposes any such
charges or restrictions, the supply of products could be disrupted and their
cost could substantially increase, either of which could have a material
adverse effect on our operating results. Unforeseen delays in customs clearance
of any goods could have a material adverse impact on our ability to deliver
complete shipments to our stores which in turn could have a material adverse
effect on our business and operating results.
We may suffer negative publicity if any of our products are found to be unsafe.
Gymboree currently tests most toys and similar products sold in our
stores. If these products have safety problems of which we are not aware or if
the Consumer Product Safety Commission recalls a product sold in our stores, we
may experience not only negative publicity, which could adversely impact our
sales and reputation, but also product liability lawsuits, which could have a
material adverse effect on our reputation, business and our financial position.
We may be subject to negative publicity or be sued if our manufacturers violate
labor laws or engage in practices that our customers believe are unethical.
We seek to require our independent manufacturers to operate their
businesses in compliance with the laws and regulations that apply to them. Our
sourcing personnel periodically visit and monitor the operations of our
independent manufacturers, but we cannot control their business and labor
practices. If an independent manufacturer violates labor laws or other
applicable regulations, or if such a manufacturer engages in labor or other
practices that diverge from those typically acceptable in the United States,
Canada or Europe, Gymboree could in turn experience negative publicity or be
sued. Negative publicity regarding the production of our products could have a
material adverse affect on sales of our products and our business, and a
lawsuit could have a material adverse effect on our financial position. For
example, see Item 3, "Legal Proceedings."
10
The loss of a key buying agent could impair our ability to deliver our
inventory in a timely fashion, impacting its value.
In 2001, one buying agent accounted for a significant portion of the
company's inventory purchases. Although we believe that other buying agents
could be identified and retained to place our required foreign production, the
loss of this buying agent could result in time delays in procuring inventory
and as a result could have a material adverse effect on our business and
operating results.
Our business is sensitive to economic conditions that impact consumer spending.
Gymboree's financial performance is sensitive to changes in overall
economic conditions that impact consumer spending, particularly discretionary
spending. Future economic conditions affecting disposable consumer income such
as employment levels, business conditions, interest rates and tax rates could
reduce consumer spending or cause consumers to shift their spending to other
products. A general reduction in the level of discretionary spending or shifts
in consumer discretionary spending to other products could have a material
adverse effect on our growth, net sales and profitability.
Our business is sensitive to changes in seasonal consumer spending
patterns that are beyond our control.
Historically, a disproportionate amount of our retail sales and a
significant portion of our net income have been realized during the months of
November and December, during the holiday season. We have also experienced
periods of increased sales activity in the early spring, during the period
leading up to the Easter holiday, and in the early fall, in connection with
back-to-school sales. Changes in seasonal consumer spending patterns for
reasons beyond our control could result in lower-than-expected sales during
these periods. Such a circumstance could cause us to have excess inventory,
necessitating markdowns to minimize this excess, which would reduce our
profitability. Any failure by us to meet our business plans for, in particular,
the third and fourth quarter of any fiscal year would have a material adverse
effect on our earnings, which in all likelihood would not be offset by
satisfactory results achieved in other quarters of the same fiscal year. Also,
because Gymboree typically spends more in labor costs during the holiday
season, hiring temporary store employees in anticipation of holiday spending, a
shortfall in expected sales during that period could result in a
disproportionate decrease in our net income.
Our results may be impaired by changes in fashion trends and consumer
preferences.
Gymboree's sales and profitability depend upon the continued demand by
customers for our apparel and accessories. We believe that our success depends
in large part upon our ability to anticipate, gauge and respond in a timely
manner to changing consumer demands and fashion trends and upon the appeal of
our products. There can be no assurance that the demand for Gymboree's apparel
or accessories will not decline or that we will be able to anticipate, gauge
and respond to changes in fashion trends. A decline in demand for our apparel
and accessories or a misjudgment of fashion trends could have a material
adverse effect on our business, financial condition and results of operations.
The highly competitive business in which we operate may impair our ability to
maintain and grow our sales and results.
The children's apparel segment of the specialty retail business is highly
competitive, and we may not be able to compete successfully in the future.
Gymboree competes on a national level with BabyGap and GapKids (divisions of
The Gap, Inc.), The Children's Place and Talbots Kids and certain leading
department stores as well as certain discount retail chains such as Old Navy (a
division of The Gap, Inc.), Kids `R' Us (a division of Toys `R' Us, Inc.) and
Target. Gymboree also competes with a wide variety of local and regional
specialty stores and with certain other retail chains. We also compete with
children's retailers that sell their products by mail order or over the
Internet. Many of these competitors are larger and have substantially greater
financial, marketing and other resources than Gymboree. Increased competition
may reduce sales and gross margins, increase operating expenses and decrease
profit margins.
11
We must maintain a minimum collateral base to secure our existing credit
facility, which is necessary for cash borrowings and letters of credit.
The amount of our credit facility for cash borrowings and letters of
credit needed for the purchase of new inventory is limited to our available
collateral. Our existing credit facility fluctuates relative to our collateral
base, which includes our inventory, cash and other assets. This collateral base
varies in value as a result of sales, merchandise purchases and profitability.
Lack of short-term liquidity, due to reaching the limit of our collateral base,
could force us to seek alternative financing or ultimately, if such financing
were not available to us, court protection from our creditors.
We may need additional capital to pursue our future business plans.
Our growth strategies may require additional capital, should our
operations generate insufficient cash flow to expand our business. For example,
we may need additional capital to update store exteriors and interiors, broaden
existing product lines, introduce new products and concepts, and to
successfully develop and expand the Janie and Jack Stores concept. To pursue
this prospective business plan, we will need to fund operations and invest in
capital projects. There can be no assurance that either internally generated
cash will be available, or that debt or equity will be available to Gymboree on
terms that are satisfactory. In addition, under the terms of our existing
credit facility, we will likely need the consent of our bank lenders before
incurring additional indebtedness, and there can be no guarantee that our
lenders will permit us to incur new debt on terms that we otherwise find
satisfactory. Also, to the extent that we raise additional capital by issuing
equity, a dilutive effect to existing stockholders will likely result.
The loss of our technology support service provider or a significant disruption
in the implementation of new systems could impair our ability to manage various
aspects of our store operations, and our ability to report results in a timely
way.
Gymboree outsources various technological support functions. If our
contractor were unable for any reason to continue to provide this support, or
were to suffer a sudden breakdown in capabilities, this could have a negative
impact on our ability to maintain reporting from our stores to headquarters,
and could prevent us from reporting sales results or earnings, or from
allocating product in a timely fashion, which could impair our ability to
manage our stores' inventory. In addition, as we have embarked on a
comprehensive strategy to upgrade the company's legacy information systems
infrastructure, a significant disruption in the implementation process
resulting in the failure of systems to integrate properly could result in
delays in reporting and inventory management which could in turn have a
material adverse effect on our business and operating results.
Team Members
As of February 2, 2002, Gymboree had over 6,923 full-time and part-time
team members. In addition, a significant number of seasonal team members are
hired during each holiday selling season. None of our team members are
represented by a labor union, and we believe that our relationship with our
team members is good.
Executive Officers of the Registrant
The following table sets forth information regarding our executive
officers as of March 31, 2002.
Name Age Position
- -------------------------------- ----- ----------------------------------------------------
Lisa M. Harper ............ 42 Vice Chair of the Board and Chief Executive Officer
Myles B. McCormick ........ 30 Vice President and Chief Financial Officer
Lisa M. Harper has been Chief Executive Officer and Vice Chair of the
Board since February 2001 and has been a director of Gymboree since June 2000.
Ms. Harper joined Gymboree in January 1999 as Vice President, Design. From
December 1999 until February 2000, she served as our Senior Vice President,
Merchandising and Design. From February 2000 until September 2000, Ms. Harper
served as our General Merchandise Manager. From September 2000 until February
2001, she served as our
12
President. Ms. Harper previously served as our Director of Design and
Merchandising from 1993 to 1995. Ms. Harper has also held merchandising and
design positions with several other clothing retailers, including Limited Too,
Esprit, GapKids, Mervyn's and Levi Strauss.
Myles B. McCormick joined Gymboree in May 2001 as Vice President of
Finance and was promoted to Chief Financial Officer in February 2002. Prior to
joining Gymboree, Mr. McCormick served as Senior Manager of Global Publishing
for Electronic Arts from August of 2000 to May 2001. Mr. McCormick was Vice
President of Finance and Operations for Xuny.com from January 2000 to August
2000, was the Director of Financial Planning for Bebe Stores Inc. from 1998 to
2000, and was Director of Financial Strategy for Esprit de Corp. from 1994 to
1998. Before joining Esprit, Mr. McCormick was an associate with the Lincoln
Financial Group.
Item 2. PROPERTIES
Gymboree's corporate campus is located in three office buildings in
Burlingame, California, which we occupy under leases expiring between 2003 and
2006.
We own a 300,000 square foot distribution center on 15 acres in Dixon,
California. We have an option agreement on contiguous land for an additional
six acres. All products are distributed to our U.S. stores from this facility.
Gymboree leases a 26,000 square foot distribution center in Shannon, Ireland
for European operations, and utilizes a third-party owned and operated
distribution center in Toronto, Ontario, Canada for Canadian operations.
At February 2, 2002, Gymboree's 580 stores included an aggregate of
approximately 1,025,000 square feet of space. Our stores are all leased,
typically for a 10-year term, and include a cancellation clause if minimum
revenue levels are not achieved. In most cases, Gymboree pays a minimum rent
plus a percentage rent based on the store's net sales in excess of a certain
threshold. Substantially all of the leases require us to pay insurance,
utilities, real estate taxes, and repair and maintenance expenses. In addition,
we operate 25 Play & Music sites under leases that expire between 2003 and
2010. See Note 5 of the Notes to Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS
Gymboree was named as a defendant in a lawsuit relating to sourcing of
products from Saipan (Commonwealth of the Northern Mariana Islands). A
complaint was filed on January 13, 1999 in the U.S. District Court, Central
District of California, by various unidentified worker plaintiffs against
Gymboree and approximately 25 other parties. The case was first transferred to
the U.S. District Court for the District of Hawaii and then subsequently was
transferred to the U.S. District Court for the District of the Northern Mariana
Islands. The plaintiffs sought class-action status and alleged, among other
things, that Gymboree (and other defendants) violated the Racketeer Influenced
and Corrupt Organizations Act in connection with the labor practices and
treatment of workers at factories in Saipan that make products for us. The
plaintiffs sought injunctive relief as well as actual and punitive damages.
Gymboree has agreed to a settlement with the plaintiffs that would require us
to pay approximately $200,000, but the settlement will not take effect until it
is approved by the court. There can be no assurance that the court will approve
the settlement.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Gymboree's common stock is traded on the Nasdaq National Market System
under the symbol "GYMB." The following table sets forth the quarterly high and
low sale prices per share of our common stock over the last two fiscal years,
as reported on the Nasdaq National Market System.
Fiscal 2001 Fiscal 2000
---------------------- ---------------------
High Low High Low
---------- --------- --------- ---------
First Quarter .......... 16.38 6.37 4.69 3.38
Second Quarter ......... 8.53 4.38 5.03 2.50
Third Quarter .......... 9.28 5.10 8.88 4.34
Fourth Quarter ......... 14.31 9.07 16.63 8.94
As of April 30, 2002, the number of holders of record of Gymboree's common
stock totaled approximately 683. Gymboree has never declared or paid cash
dividends on its common stock and anticipates that all future earnings will be
retained for development of its business. The payment of any future dividends
will be at the discretion of Gymboree's Board of Directors and will depend
upon, among other things, future earnings, capital requirements, our financial
position and general business conditions. In addition, Gymboree is restricted
from paying dividends under the terms of its existing credit facility.
14
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data have been derived from the
consolidated financial statements of Gymboree. The data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and notes thereto.
2001 2000 1999 1998 1997
------------- -------------- -------------- -------------- ------------
(In thousands, except operating data and per share amounts)
Statement of Operations Data: (1)
Net sales ....................................... $ 505,383 $ 448,607 $ 437,076 $ 457,219 $ 373,440
Cost of goods sold, including buying and
occupancy ...................................... (322,456) (323,958) (281,273) (292,686) (207,630)
---------- --------- --------- --------- ----------
Gross profit ................................. 182,927 124,649 155,803 164,533 165,810
Selling, general and administrative
expenses ....................................... (174,639) (185,019) (176,184) (157,092) (112,443)
Play and music income, net ...................... 2,765 2,163 2,324 2,013 517
---------- --------- --------- --------- ----------
Operating income (loss) ...................... 11,053 (58,207) (18,057) 9,454 53,884
Foreign exchange gains (losses) ................. (432) 130 (55) 187 (837)
Net interest income (expense) ................... (3,174) (1,871) 877 265 2,778
---------- --------- --------- --------- ----------
Income (loss) before income taxes ............ 7,447 (59,948) (17,235) 9,906 55,825
Income tax benefit (expense) .................... (2,867) 23,080 6,635 (3,665) (20,655)
---------- --------- --------- --------- ----------
Net income (loss) ............................ $ 4,580 $ (36,868) $ (10,600) $ 6,241 $ 35,170
========== ========= ========= ========= ==========
Basic income (loss) per share ................... $ 0.16 $ (1.38) $ (0.44) $ 0.26 $ 1.45
Diluted income (loss) per share ................. $ 0.16 $ (1.38) $ (0.44) $ 0.26 $ 1.41
Basic weighted average shares
outstanding .................................... 28,326 26,686 24,315 24,164 24,302
Diluted weighted average shares
outstanding .................................... 29,377 26,686 24,315 24,227 25,000
Operating Data:
Number of stores at end of period ............... 580 599 605 564 435
Net sales per average gross square foot ......... $ 493 $ 425 $ 417 $ 550 $ 621
Net sales per average store ..................... $ 871,344 $ 748,981 $ 722,000 $ 915,000 $ 947,000
Comparable store net sales increase
(decrease) (2) ................................. 16% (1%) (17%) (1%) 2%
Balance Sheet Data:
Working capital ................................. $ 49,268 $ 33,374 $ 57,225 $ 76,314 $ 71,590
Total assets .................................... 219,629 244,442 240,918 255,594 229,200
Long-term debt .................................. 8,830 16,443 10,877 11,460 0
Stockholders' equity ............................ 142,429 134,116 158,462 168,372 157,710
- ----------
Notes:
(1) 2001 included 52 weeks while 2000 included 53 weeks and 1999 through 1997
included 52 weeks.
(2) A comparable store is one that has been opened for a full 14 months.
Comparable stores net sales in fiscal years 2001 through 1997 were
calculated on a 52-week basis.
15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This annual report on Form 10-K contains forward-looking statements
reflecting our current expectations and there can be no assurance that
Gymboree's actual future performance will meet such expectations. Factors that
could cause future performance to vary from current expectations include, but
are not limited to, the factors discussed in Item 1, "Business" and in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. We identified our most critical accounting policies
to be those related to inventory valuation, asset impairment and income taxes.
Inventory Valuation. Inventory is valued using the retail method of
accounting and is stated at the lower of cost or market. We review our
inventory levels in order to identify slow-moving merchandise and broken
assortments (items no longer in stock in a sufficient range of sizes) and use
markdowns to clear merchandise. We estimate shortage for the period between the
last physical count and the balance sheet date. Our shortage estimate can be
affected by changes in merchandise mix and changes in actual shortage trends.
Asset Impairment. We review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. If the undiscounted future cash flows from the
long-lived assets are less than the carrying value, we recognize a loss equal
to the difference between the carrying value and the fair value of the assets.
Decisions to close a store or facility can also result in accelerated
depreciation over the revised useful life. For locations to be closed which are
under long-term leases, we record a charge for lease buyout expense or the
difference between our rent and the rate at which we expect to be able to
sublease the properties and related cost, as appropriate. Most closures occur
upon the lease expiration. Our estimate of future cash flows is based on our
experience, knowledge and typically third-party advice or market data. However,
these estimates can be affected by factors such as future store profitability,
real estate demand and economic conditions that can be difficult to predict.
Income Taxes. We record reserves for estimates of probable settlements of
domestic and foreign tax audits. At any one time, many tax years are subject to
audit by various taxing jurisdictions. The results of these audits and
negotiations with taxing authorities may affect the ultimate settlement of
these issues. Our effective tax rate in a given financial statement period may
be materially impacted by changes in the mix and level of earnings.
General
The Gymboree Corporation was founded in 1976 as a provider of interactive
parent-child play programs and began to franchise this business in 1979. In
1986, we opened our first retail store featuring children's apparel and
accessories. Through the end of fiscal 2001, we had grown to 580 stores,
including 528 stores in 50 states and the District of Columbia, 23 stores in
Canada and 29 stores in Europe.
Gymboree's net sales for 2001 increased to $505.4 million from $448.6
million in 2000 and $437.1 million in 1999. Our net income totaled $4.6 million
in 2001 compared to a net loss of $36.9 million in 2000 and a net loss of $10.6
million in 1999. Comparable store net sales, based on a 52-week period,
increased 16% during 2001 versus 2000, decreased 1% in 2000 versus 1999 and
decreased 17% during 1999 versus 1998. We expect that future increases in net
sales and net income will be dependent on the ability to generate increased
sales within existing stores, the opening of new store locations, and to
generate profitability in international stores.
Gymboree's year-end is on the Saturday closest to January 31. Fiscal year
2001, which included 52 weeks, ended on February 2, 2002. Fiscal 2000 and 1999,
which included 53 and 52 weeks, ended on February 3, 2001 and January 29, 2000,
respectively.
16
2001 Compared to 2000
Net Sales
Net sales for the fifty-two weeks ended February 2, 2002 increased to
$505.4 million, from $448.6 million in the fifty-three weeks ended February 3,
2001, an increase of $56.8 million, or 12.7%. Comparable store sales for the
52-week period increased 16% over the same 52-week period last year. The
increase reflects sales associated with the net comparable store sales increase
($68.4 million), sales from 11 new stores opened during 2001 ($4.2 million),
incremental sales from 10 stores relocated during 2001 ($1.4 million), and the
annualized revenue from store additions or relocations made during 2000 ($4.3
million). These increases more than offset the loss of sales associated with
the exclusion of the 53rd week, the loss of sales from non-Zutopia stores
closed during 2001, and the sale/closure of Zutopia on March 25, 2001 resulting
in sales of only $1.6 million in fiscal 2001 versus $11.4 million in fiscal
2000. Management believes the increase in comparable store sales was primarily
attributable to improvements in the overall product offering and inventory
levels that supported increases in both average transaction values and overall
transactions processed over the prior year. The number of stores open at the
end of the period was 580, compared to 599 open at the end of fiscal year 2000
(which included 19 Zutopia stores). The reduction in overall store count
reflects the sale of 18 and closure of 1 Zutopia stores.
Gross Profit
Gross profit for the fifty-two weeks ended February 2, 2002 increased to
$182.9 million from $124.6 million in the fifty-three weeks ended February 3,
2001, an increase of $58.3 million, or 46.8%, primarily attributable to the
increase in net sales. Last year's reported gross profit reflected the
additional week for the year, and to a lesser extent, gross profit relating to
Zutopia in fiscal 2000. As a percentage of net sales, gross profit increased
8.4 percentage points to 36.2% from 27.8% in the same period last year. The
increase in gross profit as a percentage of net sales compared to the prior
year was attributable to lower promotional rates in response to stronger
product acceptance and better inventory management, lower production costs, and
leverage on occupancy and buying costs as a result of the increase in
comparable store sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("S,G&A"), which principally
consist of non-occupancy store expenses, corporate overhead and distribution
expenses, decreased as a percentage of net sales to 34.6% in 2001 compared to
39.8% in 2000 (excluding special charges). Special charges were $6.3 million in
2000 and resulted from the loss associated with the sale of Zutopia to The Wet
Seal, Inc. and the impairment reserve for store assets and software costs
related to website development. See discussion of impairment reserve and
special charges in Notes 2, 3 and 4 of the Notes to Consolidated Financial
Statements. Excluding the special charges, the decrease in S,G&A, as a
percentage of net sales, was primarily attributable to an increase in net sales
in conjunction with the savings related to Zutopia and lower overall
distribution and selling expenses.
Play & Music Income, Net
Play & Music income, net, increased 27.8% to $2.8 million for the
fifty-two weeks ended February 2, 2002 from $2.2 million for the fifty-three
weeks ended February 3, 2001. The increase was primarily due to increases in
domestic franchise activity, royalties from existing franchises, and improved
performance related to the company's 25 owned locations, which more than offset
the impact from revenue associated with the additional week in the prior year.
Foreign Exchange Gains (Losses)
Net foreign exchange losses totaled $432,000 for the fifty-two weeks ended
February 2, 2002 compared to a net gain of $130,000 in fiscal 2001. These
losses resulted from currency fluctuations on inter-company transactions
between our United States operations and foreign subsidiaries.
17
Net Interest Income (Expense)
Net interest expense of $3.2 million was incurred for the fifty-two weeks
ended February 2, 2002 as compared to net interest expense of $1.9 million for
the fifty-three weeks ended February 3, 2001. The increase was due to higher
average borrowings at lower rates.
Income Tax
Gymboree's effective tax rate for 2001 and 2000 was 38.5%. See Note 8 of
the Notes to Consolidated Financial Statements.
2000 Compared to 1999
Net Sales
Net sales increased $11.5 million, or 3%, to $448.6 million for the 53
weeks of fiscal 2000 as compared to $437.1 million generated for the 52 weeks
of fiscal 1999. The increase reflects sales from the inclusion of the 53rd week
($ 8.2 million), sales from 9 new stores opened during 2000 ($ 3.9 million),
annualized revenue from store additions or relocations made during 1999 ($ 3.5
million), and the increased sales from 6 stores relocated during 2000 ($ 1.3
million). These increases more than offset the loss of sales associated with
the net comparable store sales decline ($ 2.7 million) and the loss of sales
from stores closed during 2000 ($ 2.7 million). Comparable store sales for the
52 weeks ended January 27, 2001, decreased 1% versus the 52 weeks ended January
29, 2000.
Gross Profit
Gross profit decreased 20% to $124.6 million in 2000 from $155.8 million
in 1999. As a percentage of net sales, gross profit decreased to 27.8% in 2000
from 35.6% in 1999. The decrease versus 1999 in both gross profit dollars and
rate as percentage of net sales reflects the cost of transitioning to our
current merchandising strategy. Specifically, during the first half of 2000, we
experienced both higher markdowns associated with liquidating undesirable
product and large comparable sales declines due to inappropriately low
inventory levels. During the third quarter, the gross profit rate was lower due
to high markdowns associated with liquidating undesirable product. During the
fourth quarter, both gross profit dollars and rate as a percentage of net sales
were higher than the fourth quarter of fiscal 1999 as a result of stronger
product acceptance and higher inventory levels.
Selling, General and Administrative Expenses
S,G&A, which principally consist of non-occupancy store expenses,
corporate overhead and distribution expenses, increased as a percentage of net
sales to 39.8% in 2000 (excluding the special charges) compared to 38.6% in
1999 (excluding special charges). Special charges totaled $6.3 million and $7.2
million in 2000 and 1999, respectively. Fiscal 2000 special charges resulted
primarily from the loss associated with the sale of Zutopia to The Wet Seal,
Inc. and the impairment reserve for store assets and software costs related to
website development. Special charges for fiscal 1999 resulted from the
implementation of a brand change and include the accelerated depreciation of
store interior assets and proprietary signage assets bearing the old trademark,
expense for modifications of store interiors and removal of certain store
assets, and the impairment reserve for store assets and software write off. See
discussion of impairment reserve and special charges in Notes 2, 3 and 4 of the
Notes to Consolidated Financial Statements. Excluding the special charges, the
increase in S,G&A, as a percentage of net sales, was primarily attributable to
increased selling expenses associated with the opening of new domestic and
international stores coupled with an increase in distribution costs resulting
from an increase in units processed.
Play & Music Income, Net
Play & Music income, net decreased 7% to $2.2 million in 2000, from $2.3
million in 1999, due to lower equipment sales, lower than anticipated product
sales and increased expenses related to the development of its new music
curriculum.
18
Foreign Exchange Gains (Losses)
Net foreign exchange gains totaled $130, 000 in 2000 as compared to net
foreign exchange losses of $55, 000 in 1999. These gains and losses resulted
from currency fluctuations in inter-company transactions between our United
States operations and foreign subsidiaries.
Net Interest Income (Expense)
Interest income decreased to $0.6 million in 2000, from $1.8 million in
1999, due to lower average cash and investment balances. In 2000, interest
expense totaled $2.5 million, as compared to 1999 interest expense of $0.9
million. The increase in interest expense relates to our long term debt issued
in 1998 and 2000 and borrowings associated with a secured credit facility
obtained in 2000, as discussed in Note 6 of the Notes to Consolidated Financial
Statements.
Income Tax
Gymboree's effective tax rate for 2000 and 1999 was 38.5%. See Note 8 of
the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
During 2001, Gymboree satisfied its cash requirements through a
combination of cash flows from operations and equity financing as compared to
2000 when cash requirements were met through a combination of equity financing
and borrowings and 1999 when cash requirements were met through cash flow from
operations. Primary uses of cash during 2001 were to repay borrowings, relocate
and expand stores, and purchase of new information systems, compared to 2000
when cash was used to finance operating activities, and 1999 when cash was used
to finance the construction of new domestic and international stores.
The combined balances of cash, cash equivalents and investments totaled
$8.4 million and $5.3 million at February 2, 2002 and February 3, 2001,
respectively.
Working capital as of February 2, 2002 totaled $49.3 million compared to
$33.4 million at February 3, 2001. The increase in working capital was
primarily due to an increase in operating cash flow that resulted in a decrease
in borrowings needed to fund operations. During 2001, Gymboree generated $39.3
million from operating activities primarily due to a decrease in inventory of
$14.2 million, net income before depreciation and amortization of $28.7 million
offset by decrease in accounts payable of $10.9 million. During 2001, investing
activities consisted of capital expenditures totaling $18.7 million, primarily
related to the opening of 11 new domestic and international stores, the
relocation and expansion of 10 stores, updating of store fronts of
approximately 150 stores and information technology system expenditures, and
proceeds from the sale of Zutopia assets of $3.2 million. During 2001,
financing activities used $20.6 million, reflecting repayments on borrowings of
$23.8 million, offset in part by proceeds from the exercise of warrants and
stock options of $3.2 million. During 2000, Gymboree used $56.6 million in
operating activities primarily reflecting an increase of inventory of $31.1
million coupled with higher deferred income taxes of $17.8 million plus a net
loss of $36.9 million. During 2000, investing activities consisted of capital
expenditures totaling $11.8 million. Also, during 2000 financing activities
provided $33.4 million reflecting borrowings (net of repayments) of $21.8
million and proceeds from issuance of stock of $11.6 million.
In August 2000, Gymboree entered into a three-year secured revolving line
of credit with Fleet Retail Finance, Inc. and a syndicate of other lenders.
This facility, as amended, provides for an overall credit line of $85 million
that may be used for working capital and capital expenditure needs and the
issuance of documentary and standby letters of credit. A blanket lien on
merchandise inventories and other assets secures the credit facility.
Gymboree's maximum borrowing under the credit facility may not exceed the
lesser of (a) $85 million or (b) the total of (i) the adjusted value of
acceptable inventory, including eligible letter of credit inventory (subject to
advance rates); plus (ii) 85% of Gymboree's eligible credit card accounts
receivable; plus (iii) 100% of eligible investments; minus (iv) applicable
reserves. Gymboree's annual capital expenditures are limited. On March 31,
2002, Gymboree amended the limitation on annual capital expenditures to $19
million for the fiscal year ended February 2, 2002.
19
As of February 2, 2002 and February 3, 2001, approximately $47.5 and $20.8
million was available pursuant to such facility. The interest rate during the
term of the facility will be based on the bank's Reference Rate plus an
applicable margin of up to 0.25% or Eurodollar rate plus an applicable margin
of up to 2.50%. As of February 2, 2002 and February 3, 2001, the interest rate
was 4.75% and 8.5%, respectively.
On August 24, 2000, Gymboree obtained a three-year term loan for $7
million with Back Bay Capital Funding LLC with an annual interest rate of 16%,
which was repaid in January 2002.
During fiscal 1998, Gymboree issued two promissory notes totaling $12
million both secured by our distribution center in Dixon, California. On April
16, 2001, Gymboree entered into an amendment that increased the interest rates
and removed certain financial covenants in the two promissory notes. The first
note of approximately $3.1 million bears interest at 9.5% and is due October
2005. The second note of approximately $8.9 million bears interest at 9.7% and
is due January 2009. Interest on the promissory notes is payable monthly.
Gymboree estimates that capital expenditures during 2002 will be between
$20 and $25 million, and will primarily be used to relocate and expand 15-20
stores, to open approximately 20 new domestic and international stores
(including Janie and Jack stores), to update the store fronts of approximately
150 stores and to upgrade and replace systems. Based on projections Gymboree
expects that it will be under the annual capital expenditures limitation for
the fiscal year 2002.
We anticipate that cash generated from operations, together with our
existing cash resources and funds available from current and future credit
facilities, will be sufficient to satisfy our cash needs through fiscal 2002.
If additional credit facilities are required, no assurance can be given that
such facilities will be available under terms acceptable to Gymboree.
SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table reflects a summary of our contractual cash obligations as of
February 2, 2002:
CONTRACTUAL OBLIGATIONS
($ IN MILLIONS) 1-3 YEARS 4-5 YEARS AFTER 5 YEARS TOTAL
- ---------------------------------------------------------------------------------------
Long-term debt $ 2,273 $ 978 $ 6,264 $ 9,515
Operating leses 124,008 68,133 73,088 265,229
- ---------------------------------------------------------------------------------------
Total contractual cash obligations $126,281 $ 69,111 $ 79,352 $274,744
- ---------------------------------------------------------------------------------------
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and establishes standards for the recognition and measurement of asset
impairment and disposal cost. SFAS No. 144 supercedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of and the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. This
statement is effective for Gymboree in the fiscal year beginning February 3,
2002 and adoption is not expected to have a material impact on our financial
position or results of operations.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method and addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will rather be tested at least
annually for impairment. Gymboree will adopt SFAS No. 142 for its fiscal year
beginning February 3, 2002 and does not expect the adoption to have a material
impact on our financial position or results of operations.
Seasonality and Quarterly Fluctuations
Gymboree has historically experienced, and expects to continue to
experience, seasonal fluctuations in our retail sales and net income.
Historically, a disproportionate amount of our retail sales and a
20
significant portion of our net income have been realized during the months of
November and December. In anticipation of increased sales activity during these
months, Gymboree hires a significant number of temporary employees to bolster
the store staff. In addition, we have experienced periods of increased sales
activity in early spring and early fall. If, for any reason, our sales were
below seasonal norms during November and December, or during the early spring
or early fall, our annual operating results could be materially and adversely
affected. Historically, retail sales and net income have been weakest during
the second fiscal quarter, and we expect this trend to continue. Gymboree's
quarterly results of operations may also fluctuate significantly as a result of
a variety of factors, including the timing of new store openings, the costs and
increased overhead associated with the opening and future operation of new
stores. In addition, the sales contributed by new stores, advertising and
marketing expenditures, merchandise mix and timing, and level of markdowns may
contribute to fluctuations in operating performance.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Gymboree enters into forward foreign exchange contracts to hedge certain
inventory purchases (principally British pounds sterling and Canadian dollars).
The term of the forward exchange contracts is generally less than one year. The
purpose of our foreign currency hedging activities is to protect us from the
risk that the dollar margins resulting from inventory purchases will be
adversely affected by changes in exchange rates.
The table below summarizes by major currency the notional amounts and fair
value of our forward foreign exchange contracts in U.S. dollars as of February
2, 2002. No contracts were outstanding as of February 3, 2001.
February 2, 2002
-------------------
Notional Fair
Amount Value
---------- ------
(In thousands)
British pounds sterling ............................ $ 3,716 $ 43
Canadian dollars ................................... 2,509 28
------- ----
Total .............................................. $ 6,225 $ 71
======= ====
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
-----
Consolidated Balance Sheets ............................. 23
Consolidated Statements of Operations ................... 24
Consolidated Statements of Cash Flows ................... 25
Consolidated Statements of Stockholders' Equity ......... 26
Notes to Consolidated Financial Statements .............. 27
Independent Auditors' Report ............................ 38
22
THE GYMBOREE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
February 2, February 3,
2002 2001
------------- ------------
(In thousands, except share
data)
Current Assets:
Cash and cash equivalents .............................. $ 8,429 $ 5,306
Accounts receivable .................................... 7,693 7,734
Merchandise inventories ................................ 63,584 78,056
Prepaid expenses ....................................... 8,302 8,139
Deferred taxes ......................................... 5,938 1,689
---------- ---------
Total current assets ................................. 93,946 100,924
---------- ---------
Property and Equipment:
Land and buildings ..................................... 9,943 9,943
Leasehold improvements ................................. 87,983 89,425
Furniture, fixtures, and equipment ..................... 117,373 107,304
---------- ---------
215,299 206,672
Less accumulated depreciation and amortization ......... (107,170) (88,990)
---------- ---------
108,129 117,682
Deferred Taxes .......................................... 13,070 21,035
Lease Rights and Other Assets ........................... 4,484 4,801
---------- ---------
Total Assets ......................................... $ 219,629 $ 244,442
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Borrowings on revolving line of credit ................. $ 0 $ 16,225
Accounts payable ....................................... 20,261 31,152
Accrued liabilities .................................... 23,732 19,539
Current portion of long-term debt ...................... 685 634
---------- ---------
Total current liabilities ............................ 44,678 67,550
---------- ---------
Long-Term Liabilities:
Long-term debt, net of current portion ................. 8,830 9,443
Deferred rent and other liabilities .................... 23,692 26,333
Term loan .............................................. 0 7,000
---------- ---------
Total Liabilities .................................... 77,200 110,326
---------- ---------
Stockholders' Equity:
Common stock, including excess paid-in capital
($.001 par value: 100,000,000 shares authorized;
28,691,016 and 28,039,553 shares outstanding at
February 2, 2002 and February 3, 2001,
respectively) ........................................ 44,484 40,475
Retained earnings ...................................... 97,945 93,641
---------- ---------
Total stockholders' equity ........................... 142,429 134,116
---------- ---------
Total Liabilities and Stockholders' Equity ........... $ 219,629 $ 244,442
========== =========
See notes to the consolidated financial statements
23
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
As a Percentage of Net Sales
Year Ended Year Ended
----------------------------------------- ----------------------------------------
February 2, February 3, January 29, February 2, February 3, January 29,
2002 2001 2000 2002 2001 2000
------------- ------------- ------------- ------------- ------------- ------------
(In thousands, except per share data)
Net sales ............................. $ 505,383 $ 448,607 $ 437,076 100.0% 100.0% 100.0%
Cost of goods sold, including buying
and occupancy expenses ............... (322,456) (323,958) (281,273) (63.8) (72.2) (64.4)
---------- ---------- ---------- ----- ----- -----
Gross profit .......................... 182,927 124,649 155,803 36.2 27.8 35.6
Selling, general and administrative
expenses ............................. (174,639) (185,019) (176,184) (34.6) (41.2) (40.3)
Play and music income, net ............ 2,765 2,163 2,324 0.5 0.5 0.5
---------- ---------- ---------- ----- ----- -----
Operating income (loss) .............. 11,053 (58,207) (18,057) 2.1 (13.0) (4.1)
Foreign exchange gains (losses),
net .................................. (432) 130 (55) (0.1) 0.0 (0.0)
Net interest income (expense) ......... (3,174) (1,871) 877 (0.6) (0.4) 0.2
---------- ---------- ---------- ----- ----- -----
Income (loss) before income
taxes .............................. 7,447 (59,948) (17,235) 1.5 (13.4) (3.9)
Income tax benefit (expense) .......... (2,867) 23,080 6,635 (0.6) 5.1 1.5
---------- ---------- ---------- ----- ----- -----
Net income (loss) .................... $ 4,580 $ (36,868) $ (10,600) 0.9% (8.2)% (2.4)%
========== ========== ========== ===== ===== =====
Income (loss) per share:
Basic ................................ 0.16 (1.38) (0.44)
Diluted .............................. 0.16 (1.38) (0.44)
Weighted average shares outstanding:
Basic ................................ 28,326 26,686 24,315
Diluted .............................. 29,377 26,686 24,315
See notes to the consolidated financial statements
24
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
----------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
------------- ------------- --------------
Cash Flows From Operating Activities: (In thousands)
Net income (loss) ............................................ $ 4,580 $ (36,868) $ (10,600)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................... 24,106 24,104 24,909
Impairment reserve .......................................... 115 535 4,325
Deferred income taxes ....................................... 3,716 (17,757) (7,144)
Non-cash compensation expense ............................... 0 130 0
Loss on disposal of property and equipment .................. 983 6,946 949
Tax benefit from exercise of stock options .................. 848 957 0
Change in assets and liabilities:
Accounts receivable ....................................... 41 (2,814) 2,891
Merchandise inventories ................................... 14,196 (31,100) 27,031
Prepaid expenses and other assets ......................... 154 (6,731) 2,049
Accounts payable .......................................... (10,891) 12,556 (3,246)
Accrued liabilities ....................................... 4,078 (3,736) 4,997
Deferred liabilities ...................................... (2,641) (2,792) (922)
--------- ---------- ----------
Net cash provided by (used in) operating activities ......... 39,285 (56,570) 45,239
--------- ---------- ----------
Cash Flows Fom Investing Activities:
Capital expenditures ......................................... (18,731) (11,821) (33,188)
Proceeds from sale of assets ................................. 3,195 0 0
--------- ---------- ----------
Net cash provided by (used in) investing activities ......... (15,536) (11,821) (33,188)
--------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from issuance of stock .............................. 3,161 11,581 952
Proceeds from (payments on) borrowings ....................... (16,225) 16,225 0
Payments on long term debt ................................... (7,562) 5,617 (539)
--------- ---------- ----------
Net cash provided by (used in) financing activities ......... (20,626) 33,423 413
--------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents ......... 3,123 (34,968) 12,464
Cash and Cash Equivalents:
Beginning of Year ............................................ 5,306 40,274 27,810
--------- ---------- ----------
End of Year .................................................. $ 8,429 $ 5,306 $ 40,274
========= ========== ==========
Other Cash Flow Information:
Cash paid during the year for income taxes ................... $ 461 $ 275 $ 699
Refunds received during the year for income taxes ............ $ (2,666) $ (7,213) $ (1,347)
Cash paid during the year for interest ....................... $ 3,441 $ 2,344 $ 1,058
See notes to the consolidated financial statements
25
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
--------------------- Additional
Paid In
Shares Amount Capital
------------ -------- ------------
(Dollars in thousands)
Balance at January 30, 1999 ........... 24,240,763 $ 29 $ 26,826
Issuance of common stock under
stock option and purchase
plans .............................. 160,841 0 952
Net adjustments for foreign
currency translation ...............
Net loss .............................
---------- ----- --------
Balance at January 29, 2000 ........... 24,401,604 $ 29 $ 27,778
Issuance of common stock under
stock option and purchase
plans .............................. 439,279 0 2,117
Net proceeds from issuance of
common stock pursuant to
private placement .................. 3,198,670 3 9,461
Stock options exchanged for
services ........................... 130
Tax benefit from exercise of
stock options ...................... 957
Net adjustments for foreign
currency translation ($239) and
unrealized net gains on cash
flow hedges of $93 .................
Net loss .............................
---------- ----- --------
Balance at February 3, 2001 ........... 28,039,553 $ 32 $ 40,443
Issuance of common stock
under stock option and
purchase plans ..................... 346,286 0 2,254
Issuance of common stock under
exercise of stock warrants ......... 305,177 1 906
Tax benefit from exercise of
stock options ...................... 848
Net adjustments for foreign
currency translation ($251) and
unrealized net loss on cash
flow hedges of ($25) ...............
Net Income ...........................
---------- ----- --------
Balance at February 2, 2002 ........... 28,691,016 $ 33 $ 44,451
========== ===== ========
Accumulated
Other Total
Retained Comprehensive Comprehensive
Earnings Income/(Loss) Total Income/(Loss)
------------- --------------- ------------- --------------
(Dollars in thousands)
Balance at January 30, 1999 ........... $ 141,157 $ 360 $ 168,372
Issuance of common stock under
stock option and purchase
plans .............................. 952
Net adjustments for foreign
currency translation ............... (262) (262) $ (262)
Net loss ............................. (10,600) (10,600) (10,600)
--------- ------- --------- ----------
Balance at January 29, 2000 ........... $ 130,557 $ 98 $ 158,462 $ (10,862)
Issuance of common stock under
stock option and purchase
plans .............................. 2,117
Net proceeds from issuance of
common stock pursuant to
private placement .................. 9,464
Stock options exchanged for
services ........................... 130
Tax benefit from exercise of
stock options ...................... 957
Net adjustments for foreign
currency translation ($239) and
unrealized net gains on cash
flow hedges of $93 ................. (146) (146) (146)
Net loss ............................. (36,868) (36,868) (36,868)
--------- ------- --------- ----------
Balance at February 3, 2001 ........... $ 93,689 $ (48) $ 134,116 $ (37,014)
Issuance of common stock
under stock option and
purchase plans ..................... 2,254
Issuance of common stock under
exercise of stock warrants ......... 907
Tax benefit from exercise of
stock options ...................... 848
Net adjustments for foreign
currency translation ($251) and
unrealized net loss on cash
flow hedges of ($25) ............... (276) (276) (276)
Net Income ........................... 4,580 4,580 4,580
--------- ------- --------- ----------
Balance at February 2, 2002 ........... $ 98,269 $ (324) $ 142,429 $ 4,304
========= ======= ========= ==========
See notes to the consolidated financial statements
26
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of the Business -- Gymboree is a leading specialty retailer of high
quality apparel and accessories for children and operates as one reportable
segment. As of February 2, 2002, Gymboree operated 580 stores, including 528
Gymboree stores in the United States, 23 Gymboree stores in Canada and 29
stores in Europe, as well as an on-line store at www.gymboree.com. Effective
March 25, 2001, Gymboree sold its Zutopia stores to The Wet Seal, Inc. (See
Note 3.).
Fiscal Year -- Gymboree's year-end is on the Saturday closest to January
31. Fiscal year 2001, which included 52 weeks, ended on February 2, 2002.
Fiscal year 2000, which included 53 weeks, ended on February 3, 2001. Fiscal
year 1999, which included 52 weeks, ended on January 29, 2000.
Basis of Presentation -- The consolidated financial statements include The
Gymboree Corporation and its subsidiaries, all of which are wholly owned
("Gymboree"). All significant inter-company balances and transactions have been
eliminated.
Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents -- Cash equivalents consist of highly liquid
investment instruments with a maturity of three months or less, at date of
purchase.
Estimated Fair Value of Financial Instruments -- The carrying value of
cash and cash equivalents, accounts receivable, accounts payable, and current
portion of debt approximates their estimated fair values due to the short
maturities of these instruments. The carrying value of long-term debt
approximates its fair value based on current rates available to Gymboree for
similar debt.
Merchandise Inventories -- Merchandise inventories are recorded under the
retail method of accounting and are stated at the lower of cost or market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from approximately 3 to 10 years.
Leasehold improvements are amortized over the lesser of the applicable lease
term, which range from 10 to 25 years, or the estimated useful lives of the
improvements. Internally developed and purchased computer software is recorded
at cost and is amortized using the straight-line method based on an estimated
useful life of 3 to 5 years.
Capitalized Interest -- Gymboree capitalizes interest as a component of
the cost of property and equipment constructed for its own use. In fiscal 2001,
2000 and 1999, capitalized interest totaled $362,000, $279,000 and $150,000,
respectively.
Income Taxes -- Gymboree computes income taxes using the asset and
liability method. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of our
assets and liabilities. A valuation allowance is recorded when it is deemed
more likely than not that a deferred tax asset will not be realized.
Lease Rights -- Lease rights are included in other assets and are recorded
at cost and amortized over the lesser of 10 years or the life of the lease.
Deferred Rent -- Many of Gymboree's operating leases contain predetermined
fixed increases of the minimum rental rate during the initial lease term. For
these leases, Gymboree recognizes the related rental expense on a straight-line
basis and records the difference between the amounts charged to expense and the
rent paid as deferred rent.
27
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Construction Allowance -- As part of many of our lease agreements, we
receive construction allowances from landlords. These allowances offset the
capital expenditures associated with the expansion or construction of stores.
The construction allowances have been deferred and are amortized on a
straight-line basis over the life of the lease as a reduction of rent expense.
Construction allowances of $1.1 million, $1.4 million and $1.6 million were
granted in fiscal years 2001, 2000 and 1999, respectively, and are included in
deferred rent and other liabilities.
Foreign Currency Translation -- Assets and liabilities of foreign
subsidiaries are translated to U. S. dollars at the exchange rates effective on
the balance sheet date. Revenues, costs of sales, expenses and other income are
translated at average rates of exchange prevailing during the year. Translation
adjustments resulting from this process are recorded as other comprehensive
income.
Store Pre-opening Costs -- Store pre-opening costs are expensed as
incurred.
Revenue Recognition -- Revenue is recognized at the point of sale in
Gymboree's retail stores. Sales are presented net of a sales return reserve,
which estimates the amount of merchandise that will be returned relating to
revenue recognized in the current period. Gymboree issues store credits for
returned merchandise instead of cash after certain time periods elapse and
these credits can be used to purchase merchandise. Gymboree also sells gift
certificates in its retail store locations and through its website. Revenue is
recognized in the period that the gift certificate or store credit is redeemed.
For the Play & Music operations, initial franchise fees for all sites sold
in a territory are recognized as revenue when the franchisee has paid the
initial franchise fee, in form of cash and/or note payable, and has fully
executed a franchise agreement. Gymboree receives a royalty of 6% of each
domestic franchisee's gross receipts from operations. Such royalty fees are
recorded when earned and are due from the franchisees 30 days following the
close of each quarter. Gymboree also recognizes revenues from consumer products
sold to franchisees for resale at the time the products are shipped to the
franchisees.
Related Party Transactions -- During fiscal 2001, Gymboree had sales of
$2.7 million to Ross Stores, Inc., a retailer for which the Company's Chairman
of the Board serves on the board of directors.
Stock-Based Compensation -- Gymboree accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees."
Comprehensive Income (Loss) -- Comprehensive income (loss) consists of net
income (loss), foreign currency translation adjustments and fluctuations in the
fair market value of certain derivative financial instruments.
Income (Loss) Per Share -- Basic income (loss) per share is calculated by
dividing net income (loss) for the fiscal year by the number of weighted
average common shares outstanding for the fiscal year. Diluted income (loss)
per share includes the effects of dilutive instruments, such as stock options,
and uses the average share price for the period in determining the number of
incremental shares that are to be added to the weighted average number of
shares outstanding.
28
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the incremental shares from potentially
dilutive securities, calculated using the treasury stock method:
Fiscal Year Ended
-------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
------------- --------------- ------------
(In thousands)
Shares used to compute basic EPS ........... 28,326 26,686 24,315
Add: effect of dilutive securities ......... 1,051 0 0
------ ------ ------
Shares used to compute diluted EPS ......... 29,377 26,686 24,315
====== ====== ======
Anti-dilutive options and warrants to purchase weighted average shares
totaling approximately 976,858, 674,450 and 75,013 in 2001, 2000 and 1999,
respectively, were not included in the computation of diluted income (loss) per
share as the effect would be anti-dilutive.
Reclassifications -- Certain amounts for prior years have been
reclassified to conform to the 2001 presentation.
Recently Issued Accounting Standards -- In August 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and establishes standards for the
recognition and measurement of asset impairment and disposal cost. SFAS No. 144
supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. This statement is effective for
Gymboree in the fiscal year beginning February 3, 2002 and adoption is not
expected to have a material impact on our financial position or results of
operations.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method and addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives will be amortized and that goodwill and intangible
assets with indefinite lives will not be amortized, but will rather be tested
at least annually for impairment. Gymboree will adopt SFAS No. 142 for its
fiscal year beginning February 3, 2002 and does not expect the adoption to have
a material impact on our financial position or results of operations.
Foreign Exchange Exposure Management -- The Company has international
subsidiaries selling product in local currencies, which were purchased in US
dollars. To protect product margins as well as foreign currency payables and
receivables, Gymboree has a policy of hedging forecasted and existing foreign
currency risk with forward contracts that expire within 12 months. These
forward contracts are employed to eliminate, reduce, or transfer selected
foreign currency risks that can be confidently identified and quantified.
Hedges of anticipated transactions are designated and documented at inception
as cash flow hedges and evaluated for effectiveness at least quarterly. The
critical terms of the forward contract and the underlying transaction are
matched at inception, and ongoing effectiveness is calculated by comparing the
cumulative change in the forward contract's fair value to the cumulative change
in fair value of the defined exposure, with the effective portion of the highly
effective hedges accumulated in
29
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Comprehensive Income (OCI). Any residual changes in the fair value of the
instruments are recognized immediately in Other Income and Expense. An
immaterial amount of ineffectiveness was recognized in fiscal 2001 and 2000.
Amounts in Accumulated OCI related to hedged inventory purchases are
reclassified to Cost of Goods Sold ("COGS") based on inventory turns. The net
unrealized gain on cash flow hedges in accumulated OCI as of February 2, 2002,
before tax effect, was $69,000 and is expected to be reclassified into COGS
within the next 12 months.
The following table summarizes activity in OCI related to Gymboree's
hedging activities during the period from April 30, 2000 (date of adoption)
through February 2, 2002 (in thousands).
Cumulative effect of accounting change (SFAS 133) ..................... $ (22)
Unrealized net gains on cash flow hedges .............................. 443
Reclassification of net gains on cash flow hedges to COGS ............ (328)
------
Accumulated net gains on cash flow hedges at February 3, 2001 ......... 93
Unrealized net losses on cash flow hedges ............................. (99)
Reclassification of net losses on cash flow hedges to COGS ............ 75
------
Accumulated net gains on cash flow hedges at February 2, 2002 ......... $ 69
======
2. Impairment of Long-Lived Assets
Gymboree recognizes impairment when the estimated undiscounted future cash
flows are less than the asset's carrying value. For each of the stores where
assets were written off, the operations continue to generate losses. During
2001, Gymboree identified 3 under performing stores and provided an impairment
reserve equal to the carrying value of the leasehold improvements and fixtures
used in the stores. This provision amounted to approximately $115,000.
During 2000, Gymboree identified 10 under performing stores and provided
an impairment reserve equal to the carrying value of the leasehold improvements
and fixtures used in the stores. This provision amounted to approximately
$532,000. Two of these stores were closed in fiscal 2000 with the remaining
stores closed during fiscal 2001.
During 1999, Gymboree identified 14 under performing stores and three Play
& Music corporate sites and established an impairment reserve equal to the
carrying value of the leasehold improvements and fixtures used in the stores.
Impairment of the leasehold improvements and fixtures was based on the lack of
both current and expected future positive cash flows of the stores. This
reserve was approximately $3.0 million. Additionally, during 1999 Gymboree
wrote off approximately $1.3 million of software applications (through
accelerated depreciation) that were not Year 2000 compliant and were not going
to be used in 2000.
The impairment losses recorded in 2001, 2000 and 1999 were included in
selling, general and administrative expenses within the Statements of
Operations.
3. Sale of Zutopia Chain
During fiscal 2000, Gymboree entered into an agreement with The Wet Seal,
Inc. to sell the 19 Zutopia stores for an estimated sales price of $3.5
million. Under the terms of the agreement Gymboree transferred substantially
all the assets of the Zutopia stores, along with the trademark, to The Wet
Seal, Inc. and assigned 18 of the 19 store leases. The remaining store was
closed. As a result of the agreement, Gymboree recognized a loss of $5 million
in fiscal 2000, which includes the loss related to the property and equipment
of $3.7 million ($7.2 million of property and equipment less proceeds of $3.5
million), loss on
30
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
inventory of $1.1 million, legal fees of $0.1 million and severance of $0.1
million. The $5 million loss is included in selling, general and administrative
expenses. The assets were transferred and sale closed on March 25, 2001 and
March 29, 2001, respectively.
4. Special Charges
During fiscal year 2000 and 1999, Gymboree recorded special charges of
$6.3 million and $9.2 million, respectively. Special charges for fiscal 2000
resulted from the loss associated with the sale of Zutopia to The Wet Seal,
Inc. and the impairment reserve for store assets and software costs related to
website development (approximately $800,000). During 1999, Gymboree incurred
special charges of $9.2 million, of which $7.2 million is included in selling,
general and administrative expenses and $2 million is included in cost of goods
sold. The charges, which primarily resulted from the implementation of a brand
change, included the accelerated depreciation of store interior assets and
proprietary signage assets bearing the old trademark in the amount of $1.5
million, expense for modifications of store interiors and removal of certain
store assets of $1.4 million, the impairment reserve for store assets of $3.0
million and software write-off of $1.3 million (discussed in Note 2). The
Company accelerated the depreciation for the estimated remaining life of store
interior assets and proprietary signage assets bearing the old trademark in
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" and SEC Staff Accounting Bulletin
No. 100 "Restructuring and Impairment Charges". The remaining $2 million charge
to cost of goods sold related to the disposal of inventory, which did not meet
Gymboree's new fashion direction.
5. Leases
Gymboree leases its store locations, corporate Play & Music sites,
corporate headquarters, the Shannon, Ireland foreign distribution centers and
certain fixtures and equipment under operating leases. The leases expire at
various dates through the year 2024. Store leases typically provide for payment
by Gymboree of operating expenses, real estate taxes and additional rent based
on a percentage of sales if a specified sales target is exceeded. Furthermore,
a majority of the leases allow Gymboree to vacate after a stipulated period.
Future minimum lease payments under operating leases at February 2, 2002
are as follows:
(In thousands)
---------------
2002 ..................................... $ 42,693
2003 ..................................... 41,476
2004 ..................................... 39,839
2005 ..................................... 37,158
2006 ..................................... 30,975
Later years .............................. 73,088
---------
Total minimum lease commitments .......... $ 265,229
=========
Rent expense for all operating leases totaled $71.1 million, $66.5
million, and $58.2 million in 2001, 2000, and 1999, respectively, which
includes percentage rent expense and other lease required expenses of $19.7,
$18.9 million, and $18.1 million for 2001, 2000, and 1999, respectively.
6. Borrowing Arrangements
During 2000, Gymboree entered into a three-year secured revolving line of
credit with Fleet Retail Finance, Inc. and a syndicate of other lenders. This
facility, as amended, provides for an overall credit line of $85 million that
may be used for working capital and capital expenditure needs and the issuance
of
31
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
documentary and standby letters of credit. A blanket lien on merchandise
inventories and other assets secures the credit facility. Gymboree's maximum
borrowing under the credit facility may not exceed the lesser of (a) $85
million or (b) the total of (i) the adjusted value of independently appraised
acceptable inventory, including eligible letter of credit inventory (subject to
advance rates), plus (ii) 85% of Gymboree's eligible credit card accounts
receivable; plus (iii) 100% of eligible investments, minus (iv) applicable
reserves. Gymboree's annual capital expenditures are limited. On March 31,
2002, an amendment increased the annual capital expenditures limitation for
fiscal year 2001 to $19 million.
As of February 2, 2002 and February 3, 2001, approximately $47.5 and $20.8
million was available pursuant to such facility. The interest rate during the
term of the facility will be based on the bank's Reference Rate plus an
applicable margin of up to 0.25% or Eurodollar rate plus an applicable margin
of up to 2.50%. As of February 2, 2002 and February 3, 2001, the interest rate
was 4.75% and 8.5%, respectively.
In addition, on August 24, 2000, Gymboree obtained a three-year term loan
for $7 million with Back Bay Capital Funding LLC with an annual interest rate
of 16%. This loan was repaid in January 2002.
During fiscal 1998, Gymboree issued two promissory notes totaling $12
million both secured by our distribution center in Dixon, California. On April
16, 2001, Gymboree entered into an amendment that increased the interest rates
and removed certain financial covenants in the two promissory notes. The first
note of approximately $3.1 million bears interest at 9.5% and is due October
2005. The second note of approximately $8.9 million bears interest at 9.7% and
is due January 2009. Interest on the promissory notes is payable monthly.
During fiscal 2000, Gymboree prepaid principal of approximately $172,000 on the
first note and $577,000 on the second note.
Aggregate principal payments required under all borrowings are as follows:
(In thousands)
---------------
2002 .......................................................... $ 685
2003 .......................................................... 764
2004 .......................................................... 824
2005 .......................................................... 647
2006 .......................................................... 331
Later years ................................................... 6,264
-------
Total ...................................................... $ 9,515
=======
Total interest expense charged to operations during fiscal 2001, 2000, and
1999 totaled approximately $3.4 million, $1.8 million, and $0.9 million,
respectively.
7. Accrued Liabilities
Accrued liabilities consist of the following:
February 2, February 3,
2002 2001
------------- ------------
(In thousands)
Employee compensation ....................... $ 6,211 $ 6,887
Store operating expenses and other .......... 7,870 4,579
Income tax payable .......................... 4,347 3,807
Store credits and gift certificates ......... 4,125 2,848
Sales taxes ................................. 1,179 1,418
-------- --------
Total .................................... $ 23,732 $ 19,539
======== ========
32
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes
The provision (benefit) for income taxes consists of the following:
2001 2000 1999
----------- ------------- ----------
(In thousands)
Current:
Federal ............................. $ (518) $ (6,434) $ (32)
State taxes ......................... (585) 938 315
Foreign ............................. 255 173 226
------- ---------- ---------
Total current ..................... (848) (5,323) 509
------- ---------- ---------
Deferred:
Federal ............................. 2,611 (16,812) (5,787)
State ............................... 1,104 (945) (1,357)
------- ---------- ---------
Total deferred .................... 3,715 (17,757) (7,144)
------- ---------- ---------
Total provision (benefit) ......... $ 2,867 $ (23,080) $ (6,635)
======= ========== =========
A reconciliation of the statutory federal income tax rate with Gymboree's
effective income tax rate is as follows:
2001 2000 1999
---------- ---------- ----------
Statutory federal rate ................................. 35.0% 35.0% 35.0%
State income taxes, net of income tax benefit .......... 4.5 3.3 4.0
Other .................................................. (1.0) 0.2 (0.5)
----- ---- ----
Effective tax rate .................................... 38.5% 38.5% 38.5%
==== ==== ====
The amount of pre-tax loss attributable to foreign operations for fiscal
2001, 2000 and 1999 is $2.3 million, $7.5 million and $1.7 million,
respectively.
Deferred income taxes reflect the impact of "temporary differences"
between amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws. Temporary differences and carry-forwards,
which give rise to deferred tax assets and liabilities, are as follows:
February 2, February 3,
2002 2001
------------- ------------
(In thousands)
Deferred tax assets:
Uniform capitalization costs .......... $ 1,064 $ 1,409
Accrued reserves ...................... 1,599 5,568
Deferred rent ......................... 2,218 3,457
Net operating loss carryovers ......... 22,076 20,855
Other ................................. 368 1,210
-------- --------
27,325 32,499
======== ========
Deferred tax liability:
Prepaid expenses ...................... (938) (495)
State taxes ........................... (257) (591)
Fixed asset basis differences ......... (4,122) (5,689)
-------- --------
(5,317) (6,775)
-------- --------
33
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
February 2, February 3,
2002 2001
------------- ------------
(In thousands)
Total ........................... $ 22,008 $ 25,724
-------- --------
Valuation Allowance ............. (3,000) (3,000)
-------- --------
Net deferred tax assets ......... $ 19,008 $ 22,724
======== ========
As of February 2, 2002, Gymboree has federal and state net operating loss
carryovers of approximately $52.4 and $69.4 million, respectively. These net
operating loss carryovers will expire between 2003 and 2020. Gymboree also has
a federal AMT credit of approximately $282,000, which does not expire. Using
its best estimates, Gymboree has a valuation allowance of $3 million at
February 2, 2002 and February 3, 2001, on certain of its state deferred tax
assets as it is more likely than not that they will not be realized. The extent
to which the loss carryovers can be used to offset future taxable income may be
limited, depending on the extent of ownership changes.
9. Stockholder's Equity
Private Placement
During fiscal 2000, Gymboree issued 3,198,670 shares of common stock at
$2.97 per share, resulting in proceeds of approximately $9.5 million, net of
issuance costs. In connection with this issuance, the purchasers received
warrants to purchase 479,803 shares of Gymboree stock at $2.97 per share. These
warrants are exercisable over three years. As of February 2, 2002, warrants to
purchase 174,626 of these shares are outstanding. Shares issued to related
parties under this offering were 2,222,222, with warrants to purchase 333,334
shares.
Stock Plans
Stock Option Plans -- Gymboree's 1983 Incentive Stock Option Plan (the
"1983 Plan") and 1993 Stock Option Plan (the "1993 Plan") provide for grants to
team members of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code and for grants of non-statutory stock options and
stock purchase rights to team members, consultants and non-employee directors
of Gymboree. There are 3,600,000 shares of common stock reserved for issuance
under the 1983 Plan and 6,025,000 shares of common stock reserved for issuance
under the 1993 Plan, which includes 2,000,000 shares approved during the year
ended January 29, 2000. Options granted pursuant to the plans have been granted
at exercise prices equal to the fair market value of common stock on the date
of grant. The options have a term of either five or ten years and generally
vest over a four year period. No further options may be granted under the 1983
Plan. There were 284,248 and 805,349 shares available for the grant of options
under the 1993 Plan at February 2, 2002 and February 3, 2001, respectively.
The following summarizes all stock option transactions for the three years
ended February 2, 2002:
Weighted
Shares Average Price
Outstanding Per Share
------------- --------------
(Shares in thousands)
Balance, January 30, 1999 ......... 2,866 $ 20.16
Options granted .................. 1,396 8.46
Options exercised ................ (41) 3.45
Options canceled ................. (913) 19.15
----- ---------
Balance, January 29, 2000 ......... 3,308 $ 15.57
----- ---------
34
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Weighted
Shares Average Price
Outstanding Per Share
------------- --------------
(Shares in thousands)
Options granted .................. 3,184 5.19
Options exercised ................ (320) 5.57
Options canceled ................. (2,312) 13.59
------ ------
Balance, February 3, 2001 ......... 3,860 $ 8.83
------ -------
Options granted .................. 1,185 7.72
Options exercised ................ (248) 5.51
Options canceled ................. (705) 8.21
------ -------
Balance, February 2, 2002 ......... 4,092 $ 8.85
====== =======
The following table summarizes information about stock options outstanding
at February 2, 2002:
Options Exercisable
Options Outstanding (Vested)
- ----------------------------------------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Number Average
Exercisable Number Life Exercise Exercisable Exercise
Prices of Shares (in years) Price at February 2, 2002 Price
- ----------------------------------------- ----------- ------------ ---------- --------------------- -----------
$ 2.00 to $ 5.75 2,158,591 8.64 $ 4.63 804,709 $ 4.00
5.81 to 12.00 1,229,765 8.50 8.97 348,005 8.83
12.22 to 36.63 703,497 5.21 21.58 572,981 23.10
- --------- -------- --------- ---- -------- ------- --------
$ 2.00 to $ 36.63 4,091,853 8.01 $ 8.85 1,725,695 $ 11.32
========= ======== ========= ==== ======== ========= ========
1993 Employee Stock Purchase Plan -- We have reserved a total of 575,278
shares of common stock for issuance under the 1993 Employee Stock Purchase Plan
(the "Purchase Plan"). The price at which stock is purchased under the Purchase
Plan is equal to 85% of the fair market value of the common stock on the first
day of the applicable offering period or the last day of the applicable
purchase period, whichever is lower. Unless terminated earlier, the Purchase
Plan will terminate in 2013. There were 97,779, 119,186, and 120,040 shares
issued under the Purchase Plan in 2001, 2000, and 1999, respectively.
Additional Stock Plan Information -- Gymboree applies APB Opinion No. 25
and related interpretations in accounting for our three stock-based
compensation plans, described above. Accordingly, no compensation expense has
been recognized for our stock option plans and our employee stock purchase
plan.
Had compensation expense or income for our stock option plans and the
Purchase Plan been determined based on the fair value at the grant dates for
awards under these plans, consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation," our net income (loss) and income
(loss) per share would have been the pro forma amounts indicated below:
Year Ended
----------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
------------- ------------- --------------
(In thousands, except per share data)
Net income (loss)
As reported ......... $ 4,580 $ (36,868) $ (10,600)
Pro forma ........... 4,556 (35,708) (14,586)
35
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year Ended
--------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
------------- ------------- ------------
(In thousands, except per share data)
Basic income (loss) per share
As reported .................. $0.16 $(1.38) $(0.44)
Pro forma .................... 0.16 (1.34) (0.60)
Diluted income (loss) per share
As reported .................. $0.16 $(1.38) $(0.44)
Pro forma .................... 0.15 (1.34) (0.60)
The per share weighted average fair values of options granted during 2001,
2000, and 1999 were $7.73, $5.22, and $8.43, respectively. The fair value of
option grants and shares issued under the purchase plan are estimated on the
date of the grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Year Ended
--------------------------------------------
February 2, February 3, January 29,
2002 2001 2000
------------- ------------- ------------
(In thousands)
Expected dividend rate .......... 0.0% 0.0% 0.0%
Expected volatility ............. 96.7% 93.3% 73.5%
Risk-free interest rate ......... 4.0% 6.1% 5.3%
Expected lives (yrs.) ........... 3.0 3.0 3.0
Stockholder Rights Plan -- Gymboree has adopted a Stockholder Rights Plan
(the "Plan") which provides a dividend of one right for each outstanding share
of Gymboree's common stock. The rights are represented by and traded with
Gymboree's common stock. There are no separate certificates or markets for the
rights.
The rights do not become exercisable or trade separately from the common
stock unless 17.5% or more of the common stock of Gymboree has been acquired,
or after a tender or exchange offer is made for 17.5% or greater ownership of
Gymboree's common stock. Should the rights become exercisable, each right will
entitle the holder thereof to buy 1/1,000th of a share of our Series A
Preferred Stock at an exercise price of $125. Each 1/1,000th of a share of the
new Series A Preferred Stock will essentially be the economic equivalent of one
share of common stock.
Under certain circumstances, the rights "flip-in" and become rights to buy
Gymboree's common stock at a 50% discount. Under certain other circumstances,
the rights "flip-over" and become rights to buy an acquirer's common stock at a
50% discount.
The rights may be redeemed by Gymboree for $0.01 per right at any time on
or prior to the fifth day (or a later date as determined by the Board of
Directors) following the first public announcement by Gymboree of the
acquisition of beneficial ownership of 17.5% of our common stock.
10. 401(k) PLAN
Gymboree maintains a voluntary defined contribution 401(k) profit sharing
plan (the "Plan") covering all team members who have met certain service and
eligibility requirements. Employees may elect to contribute up to 20% of their
compensation to the Plan, not to exceed the dollar limit set by law. Gymboree
matches $0.50 to the Plan for each $1.00 contributed by a team member, up to a
maximum Gymboree contribution of $500 per team member per year. The Plan
permits team members to invest in Gymboree common stock with a limitation of
20% of their total investment. There are no trading restrictions for the team
members. Matching contributions to the Plan totaled $262,000, $267,000 and
$217,000 in 2001, 2000, and 1999, respectively.
36
THE GYMBOREE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Quarterly Financial Information (Unaudited)
The quarterly financial information presented below reflects all
adjustments, which, in the opinion of our management, are of a normal and
recurring nature necessary to present fairly the results of operations for the
periods presented.
2001 Quarter Ended
------------------------------------------------------
May 5, August 4, November 3, February 2,
2001 2001 2001 2002
------------ ----------- ------------- --------------
(In thousands, except per share amounts and store data)
Net sales ............................... $ 124,003 $ 97,747 $ 133,219 $ 150,414
Gross profit ............................ 42,664 29,317 47,894 63,052
Operating income (loss) ................. 307 (11,222) 4,276 17,692
Net income (loss) ....................... $ (369) (7,328) 1,794 10,483
Basic income (loss) per share ........... $ (0.01) $ (0.26) $ 0.06 $ 0.37
Diluted income (loss) per share ......... $ (0.01) $ (0.26) $ 0.06 $ 0.35
Stores at end of period ................. 576 577 581 580
2000 Quarter Ended
-------------------------------------------------------------
April 29, July 29, October 28, February 3,
2000 2000 2000 2001
------------- ------------ ------------- -------------------
(In thousands, except per share amounts and store data)
Net sales ............................... $ 100,632 $ 82,766 $111,881 $ 153,328
Gross profit ............................ 20,527 13,633 35,865 54,624
Operating income (loss) ................. (22,453) (27,825) (6,938) (991)(1)
Net income (loss) ....................... (13,763) (17,108) (4,828) (1,169)(1)
Basic income (loss) per share ........... $ (0.56) $ (0.64) $ (0.18) $ (0.04)(1)
Diluted income (loss) per share ......... $ (0.56) $ (0.64) $ (0.18) $ (0.04)(1)
Stores at end of period ................. 605 600 604 599
Notes:
(1) Includes a loss of $5.0 million ($ 3.1 million net of tax or $0.12 per
share) related to the disposition of Zutopia.
37
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
The Gymboree Corporation:
We have audited the accompanying consolidated balance sheets of The
Gymboree Corporation and subsidiaries ("Gymboree") as of February 2, 2002 and
February 3, 2001, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended February 2, 2002. These financial statements are the
responsibility of Gymboree's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Gymboree Corporation and
subsidiaries as of February 2, 2002 and February 3, 2001, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 2, 2002 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
San Francisco, California
April 4, 2002
38
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the sections entitled "Election of Directors Nominees" and "Section 16 (a)
Beneficial Ownership Reporting Compliance" in our 2002 Proxy Statement. See
also Item 1, "Business -- Executive Officers."
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the sections entitled "Election of Directors Compensation of Directors,"
"Executive Compensation", "Employment Contracts and Termination of Employment
and Change-in-Control Arrangements" and "Compensation Committee Interlocks and
Insider Participation" in our 2002 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the section entitled "Security Ownership" in our 2002 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the section entitled "Certain Relationships and Related Transactions" in our
2002 Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(A)(1) Financial Statements
The following documents are filed as a part of this Annual Report on Form
10-K.
Consolidated Balance Sheets as of February 2, 2002 and February 3, 2001
Consolidated Statements of Operations for each of the three fiscal years
ended February 2, 2002
Consolidated Statements of Cash Flows for each of the three fiscal years
ended February 2, 2002
Consolidated Statements of Stockholders' Equity for each of the three
fiscal years ended February 2, 2002
Notes to Consolidated Financial Statements
Independent Auditors' Report
(A)(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not
required or are not applicable.
39
(A)(3) Exhibits
Exhibit
Number Description
- ---------- ------------------------------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Amended and Restated Bylaws of Registrant. (12)
4.1 Article III of Restated Certificate of Incorporation of Registrant (See Exhibit 3.1). (1)
4.2 Form of certificate for Common Stock. (1)
4.3 Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Stock of
Registrant. (2)
4.4 Preferred Stock Rights Agreement, dated as of March 17, 1997, between Registrant and The First
National Bank of Boston, including the Certificate of Designation, the form of Rights Certificate and
the Summary of Rights attached thereto as Exhibits A, B and C, respectively. (2)
10.1* 1983 Incentive Stock Option Plan, with form of stock Option Agreement. (1)
10.3* 1993 Employee Stock Purchase Plan. (1)
10.6 Amended Lease Agreement for 700 Airport Blvd., Suite 200, Burlingame, California. (3)
10.7 Amended Lease Agreement for distribution center. (4)
10.8 California Uniform Franchise Offering Circular, including form of Franchise Agreement. (1)
10.12 Lease Agreement for 770 Airport Blvd., Burlingame, CA. (5)
10.13* Deferred Compensation Agreement. (5)
10.14 Lease Agreement for Bays 140-141, Shannon Free Zone, Shannon, Ireland, dated May 6, 1997. (6)
10.15 Lease Agreement for 111 Anza Blvd., Burlingame, CA dated January 8, 1998. (6)
10.22 Acquisition and Development Agreement for Dixon, California Distribution Facility with Carl D.
Panattoni and Wickland Properties, dated November, 1996. (6)
10.23 Standard Form of Contractor Agreement with DPR Construction, Inc. for construction of Dixon,
California Distribution Facility dated May 5, 1997. (6)
10.26* Management Change of Control Plan. (7)
10.27* Management Severance Plan. (7)
10.28 Term Loan and Security Agreement with Transamerica Business Credit Corporation, dated
December 28, 1998. (8)
10.29 Commitment Letter for the Amended and Restated Line of Credit Agreement with Bank of
America, dated March 11, 1999. (8)
10.31* Amended and Restated 1993 Stock Option Plan, with form of Stock Option Agreement, amended
and restated as of November 11, 1998. (13)
10.33 Credit Agreement with Bank of America, dated August 25, 1999. (9)
10.34 Secured Credit Agreement with Fleet Retail Finance, Inc., dated August 24, 2000. (10)
10.35 Amendment to Term Loan and Security Agreement with Transamerica Business Credit Corporation,
dated August 30, 2000. (10)
10.36 First Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc., dated October 9,
2000. (11)
10.37 Second Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc., dated October 30,
2000. (11)
10.38 Third Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc., dated November 14,
2000. (11)
40
Exhibit
Number Description
- ---------- ----------------------------------------------------------------------------------------------
10.39 Form of Common Stock Purchase Agreement, dated May 2000, between Registrant and the
Investors. (13)
10.40 Form of Warrant, dated May 2000, between the Registrant and the Investors. (13)
10.41 Form of Investor Rights Agreement, dated May 2000, between Registrant and the Investors. (13)
10.42 Form of Amendment to Warrant to Purchase Common Stock. (13)
10.43 Corporate Lease. (13)
10.44* Management Severance Plan Effective September, 2000. (13)
10.45 Third Amendment to Secured Term Loan and Security Agreement with M Credit Inc. formerly
known as Transamerica Business Credit Corporation. dated April 16, 2001. (14)
10.46 Fourth Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc. dated August 3,
2001. (12)
10.47 Fifth Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc. dated January 1, 2002.
10.48 Sixth Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc. dated March 31, 2002.
21.1 Subsidiaries of the Registrant. (13)
23.1 Independent Auditors' Consent.
Reports on Form 8-K
None.
- ----------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 filed with the Commission on February 18, 1993 (File No.
33-58322), as amended.
(2) Incorporated by reference to Exhibits 3 and 5, respectively, to the
Registrant's Registration Statement on Form 8-A filed with the Commission
on March 20, 1997 (file no. 000-21250).
(3) Incorporated by reference to the Registrant's 1994 Annual Report on Form
10-K filed with the Commission on April 24, 1995.
(4) Incorporated by reference to the Registrant's 1995 Annual Report on Form
10-K filed with the Commission on May 2, 1996.
(5) Incorporated by reference to the Registrant's 1996 Annual Report on Form
10-K filed with the Commission on May 5, 1997.
(6) Incorporated by reference to the Registrant's 1997 Annual Report on Form
10-K filed with the Commission on April 20, 1998.
(7) Incorporated by reference to the Registrant's October 31, 1998 Quarterly
Report on Form 10-Q filed with the Commission on December 21, 1998.
(8) Incorporated by reference to the Registrant's 1998 Annual Report on Form
10-K filed with the Commission on April 26, 1999.
(9) Incorporated by reference to the Registrant's July 31, 1999 Quarterly
Report on Form 10-Q filed with the Commission on September 14, 1999 and
the Registrant's Form 8-K filed with the Commission on September 8, 1999.
(10) Incorporated by reference to the corresponding exhibits to the
Registrant's July 29, 2000 Quarterly Report on Form 10-Q filed with the
Commission on September 12, 2000.
(11) Incorporated by reference to the corresponding exhibits to the
Registrant's October 28, 2000 Quarterly Report on Form 10-Q filed with
the Commission on December 12, 2000.
(12) Incorporated by reference to the corresponding exhibits to the
Registrant's August 4, 2001 Quarterly Report on Form 10-Q filed with the
Commission on September 18, 2001.
41
(13) Incorporated by reference to the corresponding exhibits to the
Registrant's 2000 Annual Report on Form 10-K filed with the Commission on
May 4, 2001.
(14) Incorporated by reference to the corresponding exhibits to the
Registrant's May 5, 2001 Quarterly Report on Form 10-Q filed with the
Commission on June 15, 2001.
* Indicates management contracts or compensatory plans or arrangements
required to be filed as exhibits to this report on Form 10-K.
42
THE GYMBOREE CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE GYMBOREE CORPORATION
April 26, 2002 By: /s/ Lisa M. Harper
- --------------------- --------------------------------
(Date) Lisa M. Harper
Chief Executive Officer and
Vice Chair of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ ----------------------------------------------------- ---------------
/s/ Stuart G. Moldaw Chairman of the Board of Directors April 26, 2002
-----------------------
Stuart G. Moldaw
/s/ Lisa M. Harper Chief Executive Officer and Vice Chair of the Board April 26, 2002
-----------------------
Lisa M. Harper
/s/ Myles B. McCormick Chief Financial Officer and (Principal Financial April 26, 2002
----------------------- and Accounting Officer
Myles B. McCormick
/s/ Walter F. Loeb Director April 26, 2002
-----------------------
Walter F. Loeb
/s/ Barbara L. Rambo Director April 26, 2002
-----------------------
Barbara L. Rambo
/s/ John C. Pound Director April 26, 2002
-----------------------
John C. Pound
/s/ William U. Westerfield Director April 26, 2002
-----------------------
William U. Westerfield
/s/ Michael Steinberg Director April 26, 2002
-----------------------
Michael Steinberg
THE GYMBOREE CORPORATION
43
EXHIBIT INDEX
Exhibit
Number Description
- ---------- ------------------------------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Amended and Restated Bylaws of Registrant. (12)
4.1 Article III of Restated Certificate of Incorporation of Registrant (See Exhibit 3.1). (1)
4.2 Form of certificate for Common Stock. (1)
4.3 Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Stock of
Registrant. (2)
4.4 Preferred Stock Rights Agreement, dated as of March 17, 1997, between Registrant and The First
National Bank of Boston, including the Certificate of Designation, the form of Rights Certificate and
the Summary of Rights attached thereto as Exhibits A, B and C, respectively. (2)
10.1* 1983 Incentive Stock Option Plan, with form of stock Option Agreement. (1)
10.3* 1993 Employee Stock Purchase Plan. (1)
10.6 Amended Lease Agreement for 700 Airport Blvd., Suite 200, Burlingame, California. (3)
10.7 Amended Lease Agreement for distribution center. (4)
10.8 California Uniform Franchise Offering Circular, including form of Franchise Agreement. (1)
10.12 Lease Agreement for 770 Airport Blvd., Burlingame, CA. (5)
10.13* Deferred Compensation Agreement. (5)
10.14 Lease Agreement for Bays 140-141, Shannon Free Zone, Shannon, Ireland, dated
May 6, 1997. (6)
10.15 Lease Agreement for 111 Anza Blvd., Burlingame, CA dated January 8, 1998. (6)
10.22 Acquisition and Development Agreement for Dixon, California Distribution Facility with
Carl D. Panattoni and Wickland Properties, dated November, 1996. (6)
10.23 Standard Form of Contractor Agreement with DPR Construction, Inc. for construction of Dixon,
California Distribution Facility dated May 5, 1997. (6)
10.26* Management Change of Control Plan. (7)
10.27* Management Severance Plan. (7)
10.28 Term Loan and Security Agreement with Transamerica Business Credit Corporation, dated
December 28, 1998. (8)
10.29 Commitment Letter for the Amended and Restated Line of Credit Agreement with Bank of
America, dated March 11, 1999. (8)
10.31* Amended and Restated 1993 Stock Option Plan, with form of Stock Option Agreement, amended
and restated as of November 11, 1998. (13)
10.33 Credit Agreement with Bank of America, dated August 25, 1999. (9)
10.34 Secured Credit Agreement with Fleet Retail Finance, Inc., dated August 24, 2000. (10)
10.35 Amended Term Loan and Security Agreement with Transamerica Business Credit Corporation,
dated August 30, 2000. (10)
10.36 First Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc., dated October 9,
2000. (11)
10.37 Second Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc., dated October 30,
2000. (11)
10.38 Third Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc., dated November 14,
2000. (11)
10.39 Form of Common Stock Purchase Agreement, dated May 2000, between Registrant and the
Investors. (13)
Exhibit
Number Description
- ---------- ---------------------------------------------------------------------------------------
10.40 Form of Warrant, dated May 2000, between the Registrant and the Investors. (13)
10.41 Form of Investor Rights Agreement, dated May 2000, between Registrant and the
Investors. (13)
10.42 Form of Amendment to Warrant to Purchase Common Stock. (13)
10.43 Corporate Lease. (13)
10.44* Management Severance Plan Effective September, 2000. (13)
10.45 Third Amendment to Secured Term Loan and Security Agreement with M Credit, Inc.
formerly known as Transamerica Business Credit Corporation, dated April 16, 2001. (14)
10.46 Fourth Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc.
dated August 3, 2001. (12)
10.47 Fifth Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc. dated January 1, 2002.
10.48 Sixth Amendment to Secured Credit Agreement with Fleet Retail Finance, Inc. dated March 31, 2002.
21.1 Subsidiaries of the Registrant. (13)
23.1 Independent Auditors' Consent.
- ----------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 filed with the Commission on February 18, 1993 (File No.
33-58322), as amended.
(2) Incorporated by reference to Exhibits 3 and 5, respectively, to the
Registrant's Registration Statement on Form 8-A filed with the Commission
on March 20, 1997 (file no. 000-21250).
(3) Incorporated by reference to the Registrant's 1994 Annual Report on Form
10-K filed with the Commission on April 24, 1995.
(4) Incorporated by reference to the Registrant's 1995 Annual Report on Form
10-K filed with the Commission on May 2, 1996.
(5) Incorporated by reference to the Registrant's 1996 Annual Report on Form
10-K filed with the Commission on May 5, 1997.
(6) Incorporated by reference to the Registrant's 1997 Annual Report on Form
10-K filed with the Commission on April 20, 1998.
(7) Incorporated by reference to the Registrant's October 31, 1998 Quarterly
Report on Form 10-Q filed with the Commission on December 21, 1998.
(8) Incorporated by reference to the Registrant's 1998 Annual Report on Form
10-K filed with the Commission on April 26, 1999.
(9) Incorporated by reference to the Registrant's July 31, 1999 Quarterly
Report on Form 10-Q filed with the Commission on September 14, 1999 and
the Registrant's Form 8-K filed with the Commission on September 8, 1999.
(10) Incorporated by reference to the corresponding exhibits to the
Registrant's July 29, 2000 Quarterly Report on Form 10-Q filed with the
Commission on September 12, 2000.
(11) Incorporated by reference to the corresponding exhibits to the
Registrant's October 28, 2000 Quarterly Report on
Form 10-Q filed with the Commission on December 12, 2000.
(12) Incorporated by reference to the corresponding exhibits to the
Registrant's August 4, 2001 Quarterly Report on
Form 10-Q filed with the Commission on September 18, 2001.
(13) Incorporated by reference to the corresponding exhibits to the
Registrant's 2000 Annual Report on Form 10-K filed with the Commission on
May 4, 2001.
(14) Incorporated by reference to the corresponding exhibits to the
Registrant's May 5, 2001 Quarterly Report on Form 10-Q filed with the
Commission on June 15, 2001.
* Indicates management contracts or compensatory plans or arrangements
required to be filed as exhibits to this report on Form 10-K.